TML Annual Report 2005-2006

Tech Mahindra Limited(Formerly Mahindra - British Telecom Limited)

IT Services and Telecom Solutions

Annual Report 2005-2006

Annual Report 2005 - 2006

Registered Office

Gateway BuildingApollo Bunder,Mumbai-400 001

Bankers

IDBIHSBC BankSBIKotak Mahindra Bank

Corporate Office

Sharda CentreOff Karve Road,Erandwane,Pune - 411 004

Auditors

Deloitte, Haskins & SellsChartered Accountants, Mumbai

Tech Mahindra LimitedFormerly Mahindra-British Telecom Limited

Board of Directors

1. Mr. Anand G. Mahindra - Chairman2. Mr. Vineet Nayyar - Vice-Chairman & Managing Director 3. Mr. Bharat Doshi4. Mr. Ulhas N. Yargop5. Mr. Al-Noor Ramji6. Mr. Arun Seth7. Hon. Akash Paul8. Dr. Raj Reddy9. Mr. Anupam Pradip Puri10.Mr. Clive Goodwin

Audit Sub - Committee

Mr. Anupam Puri - ChairmanMr. Bharat DoshiMr. Clive Goodwin Dr. Raj Reddy

Compensation Committee

Hon. Akash Paul - ChairmanMr. Ulhas N. Yargop Mr. Clive Goodwin (upto January 16, 2006)Mr. Arun Seth (From January 16, 2006)

A SNAPSHOT

1

TECH MAHINDRA LIMITED (CONSOLIDATED)FINANCIAL PERFORMANCE

Particulars

Revenue

Total Income

EBIDTA (Operating Profit)

PBT

PAT

EBIDTA Margin %

PAT Margin %

Equity Capital

Net Worth

Net Block Including CWIP

Current Assets

Current Liabilities & Provisions

Net Working Capital

Total Assets

Current Ratio

Total Assets Turnover

Fixed Assets Turnover

ROCE %

Rs Mn USDMn

5,457 112.2

5,606 115.3

1,929 39.6

1,634 33.6

1,277 26.2

35% 35%

23% 23%

202 4.15

3,369 69.14

1,485 30.48

2,658 54.6

992 20.36

1,666 34.2

4,361 89.5

2.7 2.7

1.3 1.3

3.7 3.7

57% 57%

Rs Mn USDMn

6,214 129.9

6,419 134.1

1,956 40.9

1,932 40.4

1,631 34.1

31% 31%

26% 26%

202 4.2

3,792 79.50

1,431 29.99

2,975 62.4

968 20.3

2,007 42.1

4760 99.8

3.1 3.1

1.3 1.3

4.3 4.3

54% 54%

Rs Mn USDMn

7,417 163.4

7,565 166.7

798 17.6

720 15.9

637 14.0

11% 11%

9% 9%

203 4.5

4,067 89.8

1,544 34.1

3,228 71.3

1,241 27.4

1,987 43.9

5,309 117.2

2.6 2.6

1.4 1.4

4.8 4.8

18% 18%

Rs Mn USDMn

9,456 210.4

9,542 212.2

1,350 30.2

1,115 24.9

1,024 22.8

14% 14%

11% 11%

203 4.65

4,861 111.1

1,781 40.7

3,740 85.4

1,906 43.5

1,834 41.9

6,767 154.6

2.0 2.0

1.4 1.4

5.3 5.3

25% 25%

Rs Mn USDMn

12,427 280.1

12,767 287.7

2,679 60.20

2,621 58.9

2,354 52.9

21.6% 21.6%

19% 19%

208 4.66

6,155 138.0

2,898 65.0

5,578 125.0

3,938 88.3

1,640 36.8

10,092 226.2

1.4 1.4

1.2 1.2

4.3 4.3

48% 48%

2002 2003 2004 2005 2006

Directors’ Report 3

Corporate Governance 7

Consolidated Financial Statements 11

Standalone Financial Statements 36

Financial Statements of Subsidiaries 69

Tech Mahindra (Americas) Inc. 70

Tech Mahindra GmbH 83

Tech Mahindra (Singapore) Pte. Limited 93

Tech Mahindra (Thailand) Limited 112

Tech Mahindra Foundation 119

Tech Mahindra (R&D Services) Limited 128

Tech Mahindra (R&D Services) Inc. 156

Tech Mahindra (R&D Services) Pte. Limited 165

CONTENTS PAGE


2

TECH MAHINDRA LIMITED

Your Directors present their Nineteenth Annual Report together with the audited accounts of your Company for the year ended

31st March 2006.

DIRECTORS' REPORT TO THE SHAREHOLDERS

FINANCIAL RESULTS

DIVIDEND

Your Directors declared four interim dividends for the year under review as under :

Your directors have announced a fourth interim dividend of 240% and recommend a final dividend of 200%. This total dividend of

440% includes a one time special dividend of 400%. The final dividend will be paid to those members whose names will appear in the

Register of Members on 17th July 2006, being the Record Date fixed for the purpose.

The final dividend will absorb a sum of Rs. 474.33 Mn, including Rs. 58.34 Mn as tax on distributed Profit.

Date of No. of Face value Paid up value Dividend Dividend Amount Total Dividend

declaration shares per share per Share % Per share Paid

(Rs.) (Rs.) (Rs.) (Rs.) (Rs.)

18th July

2005 102,025,355 2 2 15% 0.30 30,607,606.50 30,607,606.50

17th October 102,355,485 2 2 15% 0.30 30,706,645.50

2005 9,931,638 2 0.30 15% 0.045 446,924.00 31,153,569.50

16th January 102,456,065 2 2 30% 0.60 61,473,639.00

2006 9,931,638 2 0.30 30% 0.09 893,848.00 62,367,487.00

4th May 102,508,885 2 2 240% 4.80 492,042,648.00

2006 9,931,638 2 0.30 240% 0.72 7,150,779.00 499,193,427.00

(Rupees Mn)

For the year ended March 31 2006 2005

Income 12,284.50 9,295.93

Gross Profit 2,780.24 1,687.42

Depreciation (373.80) (315.27)

Profit before tax 2,406.44 1,372.15

Provision for taxation (205.23) (142.81)

Profit after tax before non-recurring / exceptional items 2,201.21 1,229.34

Non-recurring / exceptional items - (518.42)

Profit for the year after tax and non-recurring / exceptional items 2,201.21 710.92

Balance brought forward from previous years 3,753.58 3,382.71

Profit available for appropriation 5,954.79 4,093.64

Transfer to General Reserve (230.00) (88.00)

Dividend Interim paid (623.32) (223.20)

Final (proposed) (415.99) -

Tax on dividend - On interim dividend (87.42) (28.86)

- On final dividend (58.34) -

Balance carried forward 4,539.72 3,753.58

3


INCREASE IN SHARE CAPITAL

In July 2005, the authorised capital of the Company was

increased from Rs. 250,000,000 to Rs. 300,000,000.

Your Company allotted 782,310 shares of Rs. 2 each on the

exercise of stock options, issued under the MBT ESOP PLAN 2000

and 9,931,638 partly paid shares to Mahindra-BT Investment

Company (Mauritius) Limited. Due to this, the number of issued

and subscribed equity shares of your Company increased from

101,726,575 shares to 112,440,523 shares.

BUSINESS PERFORMANCE

Your Company has experienced strong growth in revenues and

profits in the year under review.

During the year, your Company's total income grew by 32.15%

to Rs.12,284.50 Mn from Rs. 9,295.93 Mn in the previous year.

Profit after tax has increased to Rs. 2,201.21 Mn from Rs.

1,229.34 Mn in the previous year, a growth of 79.06%.

The Company witnessed growth in all the geographies it

operates in. Your Company’s turnover grew by 14%, 225% and

90% in Europe, USA and Rest of the World (ROW) respectively..

BUSINESS OVERVIEW

Your company continues its focus on the telecom sector and has

positioned itself as a leader in this space. While strengthening its

position within the telecom service provider segment, it has also

grown significantly in the telecom equipment manufacturers

space and built strong relationships with independent software

vendors servicing the telecom sector. In fiscal 2005, your

Company was ranked by NASSCOM as the 8th largest Indian IT

services company in terms of export revenues.

The global telecommunications industry, driven by an increasing

demand for innovative products, value added services and a

rapidly evolving technological landscape, is likely to make

significant technological investments. Companies will need to

refurbish old generation networks and increase spending on

development of the next generation of products and services,

leading to increased IT spending. Most companies are looking to

use offshoring to radically improve the value delivered through

their IT spend.

Your Company is now well placed to take advantage of these

market opportunities, as it combines deep telecom expertise

and enhanced portfolio of services with proven off-shoring

capabilities. Your Company services now span a wide range,

from applications development and maintenance, solution

integration, product lifecycle management and testing to high

end, higher value added offerings such as consulting and

managed services. Your Company provides these services to its

clients in the form of telecommunications specific offerings and

through a delivery model which efficiently combines service

delivery with domain knowledge.

ACQUISITIONS

In November 2005 your Company entered into an agreement to

acquire Axes Technologies (India) Private Limited, which

provides technology solutions to leading Telecom Equipment

Manufacturers (TEM) in the areas of Research & Development

(R&D), Product Engineering and Life Cycle Support.

This is the first acquisition by your Company. This acquisition is

complementary to your Company's strong presence and

capabilities in the Telecom Service Provider space. Axes

capabilities would bridge a gap in the service offerings to the

TEM segment of the Telecom market and would be a key growth

driver for the organization going forward. Axes has significant

telecom product and protocol expertise; has deep rooted client

relationships and provides business critical services through

their engagements. Axes Technologies has now been renamed

as Tech Mahindra (R&D Services) Ltd.

RE-BRANDING TECH MAHINDRA LIMITED

Your Company has been aggressively diversifying its client base

across the complete telecom ecosystem. To develop a new

identity and to better position itself, your Company changed its

name to `Tech Mahindra Limited' effective 3rd February 2006.

While BT is a large shareholder and continues to be the largest

customer, the changed name reflects your Company's growing

client base and capabilities.

QUALITY

Over the years your company refined the process for the delivery

of large-scale business critical projects - based on the mature

understanding of business drivers, to enable in defining the best

solution, ensuring a smooth transition and enabling excellent

on-going operations. During this year your Company was

assessed at SEI CMMI Level 5 & PCMM Level 5, which are the

highest standards of process and quality leadership. The robust

service delivery framework mASTER™ coupled with

Integrated Business Management System comprising ISO

9001:2000, BS7799 adherent practices has led to high

quality results, consistently delivered within time lines and

budgets.

HUMAN RESOURCES

Your Company believes that qualified and experienced people

are its most important assets and follows policies that aim to

attract and retain the best talent with a combination of monetary

and non-monetary benefits. Substantial progress has been

made in this key facet of operation during the year.

The human asset base was substantially augmented during the

year with the Company crossing the 10,000 employee mark.

Your Company conducts periodic training programs to enable

employees to remain up-to-date with latest developments in

relevant technological areas.

It is the endeavor of your Company to preserve top talent and

offer an opportunity to its employees to fulfill their career

aspirations and to ensure further growth and nurturing of their

talent, your Company launched a Career Development Program

called 'Mould'. Mould provides a platform to develop employees

by using resources such as Training Programs, knowledge

repositories and guidance by counselors appointed exclusively

to facilitate their career growth and development.

INFRASTRUCTURE

To support its rapid growth, your Company has expanded its

footprint with world-class facilities in locations like Kolkata,

Noida, Bangalore and Chennai. While most of these facilities are

leased, in the next phase of growth the Company proposes to

have its own campuses, mainly in Special Economic Zones

(SEZs).

4


SUBSIDIARY COMPANIES

Consequent upon the change of name of the Company, the

names of all its subsidiaries were changed to bring them in line

with the parent company.

In line with the Company strategy to enlarge its global reach, the

Company established a new subsidiary in Thailand namely Tech

Mahindra (Thailand) Ltd. (formerly MBT (Thailand) Co. Ltd.).

During the year, your Company made its first acquisition when it

acquired Axes Technologies (India) Pvt. Limited, a company

providing IT services to telecom equipment manufacturers,

along with its subsidiaries in USA and Singapore, namely, Tech

Mahindra (R & D Services) Inc. and Tech Mahindra (R & D

Services) Pte. Limited, respectively. The acquisition will enable

the Company to reach a strategic position in the

telecommunications equipment manufacturers segment.

The Company has also recently promoted a non-profit

organization named `Tech Mahindra Foundation' under Section

25 of the Companies Act, 1956.

The audited statements of account of the Company's

subsidiaries for the year ended 31st March 2006 together with

reports of their Directors and the Auditors and the Statement

pursuant to section 212 of the Companies Act, 1956 are

attached.

EMPLOYEE STOCK OPTION PLAN

The Company has various incentive plans for the employees, one

of which is the Employee Stock Option Plan (ESOP).

EMPLOYEE STOCK OPTION PLAN 2000

In order to supplement the available options with the MBT ESOP

Trust for further grants, the Compensation Committee of the

Board of Directors granted 200,000 options, equivalent to

200,000 equity shares of Rs. 2 each to the Trust. The Trust, on

the recommendation of the Compensation Committee, then

granted 345,000 options to the employees and / or directors of

the Company and the holding company at an exercise price of

Rs. 83 per share, as fixed by the Compensation Committee

earlier in the year as per report dated 8th July 2005, submitted

by M/s Pravin P. Shah & Associates, Chartered Accountants.


While there were no grants under this Scheme during the year,

2,271,078 options vested during the year. None of the options

was exercised during the year.


As recommended by the Compensation Committee, the Board,

at its meeting held in October 2005, approved the ESOP 2006,

which was subsequently approved by the shareholders at their

meeting held on 16th January 2006.

Under this plan, the Compensation Committee approved a grant

of 4,633,680 options to various employees at an exercise price

of Rs. 83 in accordance with the report referred above.

None of the Directors was granted any options during the year

under this plan.

ADDRESSING SOCIAL CONCERNS

Your Company, as a responsible corporate entity, believes in

discharging its social responsibility towards development of

underprivileged in the society. Apart from providing financial

support for such activities, it also donates computer hardware to

schools and charitable institutions. It encourages its employees

to actively participate in social activities.

In order to play a more involved role in this direction, your

Company has plans to action various social initiatives through

Tech Mahindra Foundation as also through other NGOs. The

Company has donated Rs. 150 Mn as Corpus to Tech Mahindra

Foundation.

CORPORATE GOVERNANCE PHILOSOPHY

Your Company believes that Corporate Governance is a

voluntary code of self-discipline. In line with this philosophy, the

Company follows healthy Corporate Governance practices and

reports to the shareholders the progress made on the various

measures undertaken. Although the Company is not listed on

any Stock Exchange, your Directors have been reporting the

initiatives on Corporate Governance adopted by your Company.

The same is included in the section 'Corporate Governance' in

the Annual Report.

DIRECTORS

Mr. Clive Goodwin and Mr. Anupam Puri retire by rotation, and

being eligible, offer themselves for re-election.

Mr. Paul Zuckerman was appointed as an independent Additional

Director of the Company with effect from 4th May 2006. He holds

office upto the date of the forthcoming Annual General Meeting.

The Company has received a notice from a member signifying

his intention to propose Mr. Zuckerman as candidate for the

office of Director.

Mr. Frederick E. Becker resigned as alternate director to Mr. Clive

Goodwin effective 4th May 2006. Mr. Paul Ringham has been

appointed as the new alternate director in place of Mr. Becker.

DIRECTORS' RESPONSIBILITY STATEMENT

Pursuant to section 217(2AA) of the Companies Act, 1956, your

Directors, based on the representation received from the

Operating Management, and after due enquiry, confirm that:

i. In the preparation of the annual accounts, the

applicable accounting standards have been followed;

ii. they have, in the selection of the accounting policies,

consulted the Statutory Auditors and these have been

applied consistently and reasonable and prudent

judgments and estimates have been made so as to give a

true and fair view of the state of affairs of the Company as at

31st March 2006 and of the profit of the Company for the

year ended on that date;

iii. proper and sufficient care has been taken for the

maintenance of adequate accounting records in accordance

with the provisions of the Companies Act, 1956 for

safeguarding the assets of the Company and for preventing

and detecting fraud and other irregularities;

iv. the annual accounts have been prepared on a going concern

basis.

AUDITORS

M/s Deloitte Haskins & Sells, Chartered Accountants, the

Auditors of the Company, hold office up to the conclusion of the

forthcoming Annual General Meeting of the Company and have

5


given their consent for re-appointment. The shareholders will be

required to elect auditors for the current year and fix their

remuneration. The Company has received a written

confirmation from M/s Deloitte Haskins & Sells to the effect that

their appointment, if made, would be in conformity with the

limits prescribed in Section 224 of the Companies Act, 1956.The

Board recommends the appointment of M/s Deloitte Haskins &

Sells as the Auditors of the Company.

CONSERVATION OF ENERGY AND TECHNOLOGY

ABSORPTION

In view of the nature of activities that are being carried on by the

Company, Rule 2A and 2B of the Companies (Disclosure of

Particulars in the Report of Board of Directors) Rules, 1988,

concerning conservation of energy and technology absorption,

respectively are not applicable to the Company. The Company is,

however, beginning to investigate ways of reducing energy

consumption as a commitment to the global environment; this

will cover accommodation facilities, communications and

transport.

FOREIGN EXCHANGE EARNINGS AND OUTGO

The foreign exchange earnings of your Company during the year

were Rs. 11,961.61 Mn (Previous Year Rs. 9,199.70 Mn) while

the outgoings were Rs. 4,702.91 Mn (Previous Year Rs 4,247.15

Mn).

PARTICULARS OF EMPLOYEES

As required under Section 217(2A) of the Companies Act, 1956,

and the Rules made thereunder, a statement containing

particulars of the Company's employees who were in receipt of

remuneration of not less than Rs. 2,400,000 during the year

ended 31st March 2006, or of not less than Rs. 200,000 per

month, if, employed for part of the year, is given in the Annexure

to this Report.

The Department of Company Affairs, has amended the

Companies (Particulars of Employees) Rules, 1975 to the effect

that particulars of employees of companies engaged in

Information Technology sector posted and working outside India

not being directors or their relatives, drawing more than Rs.

2,400,000 per financial year or Rs. 200,000 per month, as the

case may be, need not be included in the statement but, such

particulars shall be furnished to the Registrar of Companies.

Accordingly, the statement included in this report does not

contain the particulars of employees who are posted and

working outside India.

DEPOSITS AND LOAN / ADVANCES

The Company has not accepted any deposits from the public or

its employees during the year under review.

The particulars of loans/advances and investment in its own

shares by listed companies, their subsidiaries, associates, etc.,

required to be disclosed in the annual accounts of the company

pursuant to Clause 32 of the Listing Agreement with the parent

company, Mahindra & Mahindra Limited, are furnished

separately.

AWARDS/RECOGNITION

The Company has been rated as the 8th Largest Software

exporter in India for fiscal 2005 by NASSCOM. It has also been

rated as a leader in 'The Global Outsourcing 100' 2006 by

International Association of Outsourcing Professionals (IAOP).

QAI has assessed the Company at People CMM level 5. The

People Capability Maturity Model (People CMM) is a framework

that helps organizations successfully address their critical

people issues. Based on the best current practices in fields such

as human resources, knowledge management, and

organizational development, the People CMM guides

organizations in improving their processes for managing and

developing their workforces. With this certification the Company

is now in a select group of companies worldwide that are certified

at PCMM level 5.

ACKNOWLEDGMENTS

Your Directors gratefully acknowledge the contributions made

by the employees towards the success of the Company. Your

Directors are also thankful for the co-operation and assistance

received from its customers, vendors, bankers, STPI, regulatory

and governmental authorities in India and abroad and its

shareholders.

For and on behalf of the Board

Mumbai Anand G. Mahindra

Chairman

Particulars of loans / advances and investment in its own

shares by listed companies, their subsidiaries,

associates, etc., required to be disclosed in the annual

accounts of the Company pursuant to Clause 32 of the

Listing Agreement with the parent company, Mahindra &

Mahindra Limited

Loans and advances in the nature of loans to subsidiaries:

Name of the Balances as on Maximum outstanding

Company March 31, 2006 during the year

Tech Mahindra USD 5,000,000 USD 5,000,000

(Americas) Inc. (Equivalent to (Equivalent to

Rs. 223,050,000) Rs. 223,050,000)

Loans and advances in the nature of loans to associates, loans

and advances in the nature of loans where there is no repayment

schedule or repayment beyond seven years or no interest or

interest below section 372A of the Companies Act, 1956 and

loans and advances in the nature of loans to firms/ companies in

which directors are interested - NIL

May 29, 2006

6


CORPORATE GOVERNANCE PHILOSOPHY

Your Company believes that Corporate Governance is a voluntary code of self-discipline. In line with this philosophy, the Company

follows healthy Corporate Governance practices and reports to the shareholders the progress made on the various measures

undertaken. Although the Company is not listed on any Stock Exchange, your Directors have been reporting the initiatives on

Corporate Governance adopted by your Company.

BOARD OF DIRECTORS

Your Company has a balanced combination of executive, non-executive and independent directors on the Board. The Board comprises

of representatives of Mahindra & Mahindra Limited and British Telecommunications plc. and independent directors. The Board is

chaired by Mr. Anand Mahindra as Non-Executive Chairman and the number of Independent Directors is more than 1/3rd of the total

number of Directors.

The Board meets at least 4 times a year and the maximum gap between two meetings is not more than four months.

th th th thDuring the year 2005-06, five meetings of the Board of Directors were held on 9 May 2005, 16 June 2005, 18 July 2005 , 17 thOctober 2005, and 16 January 2006. These were well attended.

The composition of the Board, the other directorships of the Board members and their attendance for the Board and the Annual

General Meeting held during FY 05-06 are as follows :

CORPORATE GOVERNANCE REPORT

Name Category Directorship in Position on Attendance of Whether attended

other Companies Committees Board Meetings last AGM

(*) As As (Yes / No)

Chairman member

Mr. Anand G. Mahindra Non-Executive 11 NIL 1 5 No

Chairman

Mr. Vineet Nayyar Vice Chairman, 6 1 NIL 5 No

Managing Director

& CEO

Mr. Bharat Doshi Non-Executive 8 1 4 4 Yes

Mr. Clive Goodwin Non-Executive NIL -- -- 3 No

Hon. Akash Paul Non-Executive, NIL -- -- 2 No

Independent

Mr. Anupam Puri Non-Executive, 4 NIL 2 3 Yes

Independent

Dr. Raj Reddy Non-Executive, 1 -- -- 4 No

Independent

Mr. Al-Noor Ramji Non-Executive NIL -- -- 4 Yes

Mr. Arun Seth Non-Executive NIL -- -- 5 Yes

Mr. Ulhas N. Yargop Non-Executive 5 2 NIL 5 Yes

1Mr. Frederick E. Becker Alternate to NIL NIL NIL 1 Yes

Mr. Clive Goodwin

2Mr. Paul Ringham Alternate to NA NA NA NA NA

Mr. Clive Goodwin

3Mr. Paul Zuckerman Non-Executive, NA NA NA NA NA

Independent

(*) This does not include private companies, foreign companies and companies under Section 25 of the Companies Act, 1956 1 th Upto 4 May 20062 th Appointed w.e.f. 4 May 20063 th Appointed w.e.f. 4 May 2006

7


1. Composition, names of members an Chairman

The composition of the Audit sub-committee is as follows:

Mr. Anupam Puri - Chairman

1Mr. Bharat Doshi

Mr. Clive Goodwin

Dr. Raj Reddy

2Mr. Paul Zuckerman

1 th Upto 4 May 2006

2 th From 4 May 2006

2. Meetings and attendance during the year

Four meetings of the Audit sub-committee were held

during the Financial Year 2005-2006. The meetings were th th thheld on 9 May 2005 , 18 July 2005 , 17 October

th 2005 and 16 January 2006.

The details of the number of Audit Sub-Committee

meetings attended by its members are given below:

AUDIT SUB-COMMITTEE

Name of Director Number of Audit subcommittee

meetings attended

Mr. Anupam Puri 3

Mr. Bharat Doshi 3

*Mr. Clive Goodwin 4

Dr. Raj Reddy 3

Mr. Paul Zuckerman NA

3. Recommendations of the committee

All the recommendations of the Audit Sub-committee

were accepted by the Board of Directors.

4. Terms of reference

The Board of Directors had constituted the Audit Sub-

committee of the Board by a circular resolution passed on th17 January 1996. The Board reconstituted the Audit Sub-

th th thcommittee on 26 February 1999, 24 August 2000, 26 th thFebruary 2001, 16 January 2003 and 4 May 2006.

The terms of reference of the Audit Sub-committee are

as follows: -

a) The Committee shall have authority to investigate into any

matter or activity within its terms of reference and in

relation to items specified under Section 292A of the

Companies Act, 1956 or referred to it by the Board.

b) The Commit tee sha l l have fu l l access to

information contained in the records of the Company and

may, if necessary, seek external professional advice.

c) The Committee shall seek information from any

employee

d) The Committee shall secure attendance of outsiders with

relevant expertise, if considered necessary.

e) The Committee may delegate any of its powers to one or

more of its members or the Company Secretary.

f) The recommendations of the Audit Committee on any

matter relating to financial management including the

Audit Report shall be binding on the Board. However,

where such recommendations are not accepted by the

Board, the reasons for the same shall be recorded in

the Minutes of the Board meeting and communicated

to the shareholders.

g) The Committee shall oversee the Company's financial

reporting process and the disclosure of its financial

information to ensure that the financial statements

are correct, sufficient and credible.

h) The Committee shall recommend the appointment,

dismissal and removal of statutory auditor, fixation of

audit fee and also approval for payment for any other

services rendered by the auditors.

i) The Committee shall review the performance of

statutory auditors including scope of their audit and

monitor the extent of their non-audit work.

j) The Committee shall review with management the

quarterly, half yearly, annual financial results, annual

report and accounts and other financial information

including reviewing, with the statutory auditors scope

and results of their audits and considering their

Management Letter before submission of their

reviews to the Board, with special emphasis on

! Any changes in accounting policies and procedures

! Major accounting entries based on exercise of

judgment by management

! Qualifications in draft audit report

! Significant adjustments arising out of audit

! The going concern assumption

! Compliance with accounting standards

! Compliance with stock exchange (after listing) and

legal requirements concerning financial statements

n) The Committee shall review the findings of any

internal investigations by the internal auditors into

matters where there is suspected fraud or irregularity

! Any related party transactions, i.e. transactions of the

company of material nature with promoters or

management, their subsidiaries or relatives etc. that

may have potential conflict with the interest of

company at large

k) The Committee shall review with the management,

statutory and internal auditors, the adequacy of

internal control systems.

l) The Committee shall review the adequacy of internal

audit function, including the structure of internal audit

department, if any, staffing and seniority of the official

heading the department, reporting structure coverage

and frequency of internal audit.

m) The Committee shall discuss with internal auditors any

significant findings and follow up thereon.

* One meeting attended by Mr. Frederick E. Becker, Alternate Director

8


Name Number of Compensation

committee meetings attended

Hon. Akash Paul 2

Mr. Clive Goodwin 3*

Mr. Arun Seth 1

Mr. Ulhas N. Yargop 4

* One meeting attended by Mr. Frederick E. Becker, Alternate Director

3. Terms of reference

The Compensation committee was constituted for the

purpose of determining the terms and conditions including

the remuneration payable to Managing Director of the rdCompany. By a resolution passed on 23 October 2000, the

Board of Directors enlarged the terms of reference of the

committee and entrusted it with the following terms of

reference, which were originally entrusted to the ESOP

Compensation Committee:

a) To take actions arising out of Employee Stock Option Plan

2000 (ESOP 2000)

b) Employee Stock Option Plan Scheme

c) Formation of Trust thereunder

d) Appointment of Trustees of the Trust

GENERAL BODY MEETINGS

The details of the last three Annual General Meetings of the

Company are as under:

Year Venue of AGM Date Time

2002-03 Wing 1, Oberoi July 18, 2003 5.00 pm

Estate Gardens,

Chandivali, Andheri (E),

Mumbai 400 072

2003-04 Oberoi Estate Gardens, July 16, 2004 4.30 pm


Mumbai 400 072

2004-05 Oberoi Estate Gardens, July 19, 2005 2.30 pm


Mumbai 400 072

MEANS OF COMMUNICATIONS

As a ̀ Corporate Governance' initiative, the Company has been

publishing its Quarterly, Half yearly and Annual results in the

business news papers.

GENERAL SHAREHOLDER INFORMATION

A. Forthcoming AGM

thThe next AGM of the Company will be held on 18 July

2006.

B. Financial Calendar

Tentative schedule Likely Board Meeting

schedule

Financial reporting for the Second fortnight of July

quarter ending June 30, 2006

2006

Financial reporting for the Second fortnight of

quarter ending September October2006

30, 2006

Financial reporting for the Second fortnight of

quarter ending December January 2007

31, 2006

Financial reporting for the quarter First fortnight of May

ending March 31, 2007 2007

Annual General Meeting for the Second fortnight of July

year ending March 31, 2006 2006

C. Record date for the purpose of dividend

The record date to determine the entitlement of shareholders to receive the final dividend as may be

thdeclared for the year ended March 2006 will be 17 July

2006.

D. Address for correspondence

Secretarial & Legal Department, Tech Mahindra Limited,

Sharda Centre, Erandavane, Pune 411 004, INDIA

or failure of internal control systems of a material

o) The Committee shall discuss with statutory auditors before

the audit commences, the nature and scope of audit as well

as have post audit discussion to ascertain any area of

concern.

p) The Committee shall review the company's financial and

risk management policies.

q) The Committee shall look into the reasons for substantial

defaults in the payment to the depositors, debenture

holders, shareholders (in case of non-payment of

dividend) and creditors.

COMPENSATION (REMUNERATION) COMMITTEE:

1. Composition, name of members and Chairman

The composition of the Committee is as follows:

! Hon. Akash Paul - Chairman

! Mr. Ulhas N. Yargop

1! Mr. Clive Goodwin

2! Mr. Arun Seth

1 th Upto 16 January 2006

2 th From 16 January 2006

2. Meetings and attendance during the year

Four meetings of the Compensation Committee were held

during the Financial Year 2005-2006. The meetings were th th thheld on 9 May 2005 , 18 July 2005 , 17 October 2005 ,

thand 16 January 2006

The details of the number of Committee meetings attended

by its members are given below:

9

nature and report the matter to the Board.


FINANCIAL STATEMENTS OF

CONSOLIDATED & STANDALONE

FOR THE YEAR ENDED MARCH 31, 2006


10

As at As at

Schedule March 31, 2006 March 31, 2005

Rupees Rupees

I. SOURCES OF FUNDS :

SHAREHOLDERS' FUNDS:

Capital I 207,997,261 203,453,150

Reserves and Surplus II 5,946,272,090 4,657,979,301

MINORITY INTEREST 356,748 -

TOTAL 6,154,626,099 4,861,432,451

II.APPLICATION OF FUNDS :

FIXED ASSETS: III

Gross Block 4,579,632,590 2,866,690,576

Less : Depreciation 1,879,763,082 1,156,486,242

Net Block 2,699,869,508 1,710,204,334

Capital Work-in-Progress, including Advances 198,287,676 70,489,653

2,898,157,184 1,780,693,987

INVESTMENTS IV 1,504,823,264 1,112,780,387

DEFFERED TAX ASSET (NET) 111,677,939 133,728,512

CURRENT ASSETS, LOANS AND ADVANCES: V

Sundry Debtors 4,377,337,724 2,211,684,007

Cash and Bank Balances 759,690,097 1,284,958,022

Loans and Advances 440,664,512 243,300,791

5,577,692,333 3,739,942,820

Less : CURRENT LIABILITIES AND PROVISIONS :

Liabilities VI 1,835,918,392 1,290,229,650

Provisions VII 2,101,806,229 615,483,605

3,937,724,621 1,905,713,255

Net Current Assets 1,639,967,712 1,834,229,565

TOTAL 6,154,626,099 4,861,432,451

SIGNIFICANT ACCOUNTING POLICIES

AND NOTES ON ACCOUNTS XI

CONSOLIDATED BALANCE SHEET AS AT MARCH 31, 2006

CONSOLIDATED FINANCIAL STATEMENTS

As per our attached report of even date

For Tech Mahindra Limited

Mr. Anand G.Mahindra - Chairman Mr. Vineet Nayyar - Vice Chairman & Managing DirectorMr. Bharat Doshi - Director Mr. Al-Noor Ramji - DirectorMr. Clive Goodwin - Director Dr. Raj Reddy - Director Mr. Anupam Puri - Director Mr. Arun Seth - Director Hon. Akash Paul - Director Mr. Ulhas N. Yargop - Director

New York,Dated : May 4, 2006 Mr. Vikrant Gandhe - Asst. Company Secretary

Chartered Accountants

A B JaniPartner

MumbaiDated : May 15, 2006

For Deloitte Haskins & Sells


11

CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2006

Schedule Total Year ended

March 31, 2006 March 31, 2005

Rupees Rupees

INCOME VIII 12,766,799,101 9,541,898,337

EXPENDITURE :

Personnel IX 5,623,718,946 3,976,170,587

Operating and Other Expenses X 4,124,241,970 4,129,988,032

Depreciation 397,480,714 321,132,074

TOTAL 10,145,441,630 8,427,290,693

PROFIT BEFORE TAXATION 2,621,357,471 1,114,607,644

Provision for Taxation

- Current tax [includes provision for wealth tax (207,680,073) (142,248,589)

of Rs. 186,355 (previous year Rs. Nil)]

- Deferred tax (24,529,415) 51,540,476

- Fringe benefit tax (35,390,000) -

PROFIT BEFORE MINORITY INTEREST 2,353,757,983 1,023,899,531

Minority Interest (37,782) -

NET PROFIT FOR THE YEAR 2,353,720,201 1,023,899,531

Balance brought forward from previous year 3,760,456,398 3,076,610,062

Balance available for appropriation 6,114,176,599 4,100,509,593

Interim Dividend - I (30,607,607) (121,658,250)

Interim Dividend - II (31,153,569) (101,537,765)

Interim Dividend - III (62,367,487) -

Interim Dividend - IV (499,193,427) -

Final Dividend (415,994,523) -

Dividend Tax (145,764,155) (28,857,180)

Transfer to General Reserve (230,000,000) (88,000,000)

Balance Carried to Balance Sheet TOTAL 4,699,095,831 3,760,456,398

Earning Per Share ( Refer note 12 of Schedule XI)

- Basic 22.63 10.07

- Diluted 18.32 8.97








A B JaniPartner



12

Annual Report 2005 - 2006 CONSOLIDATED FINANCIAL STATEMENTS

13

As at As at March 31, 2006 March 31, 2005

Rupees Rupees Rupees

A Cash Flow from operating activitiesNet Profit before taxation 2,621,357,471 1,114,607,644 Adjustments for:Depreciation 397,480,714

321,132,074 Loss on sale of Fixed Assets, (net) 4,407,226 3,357,211 Fixed Assets written off - 47,505 Decrease in fair value of Current Investment 267,194 155,364 Exchange gain (net) (21,089,447) (49,546,135)Currency translation adjustment (10,099,676) 6,207,680 Dividend from current Investments (52,950,921) (16,192,295)Interest Income (67,137,674) (31,561,412)Profit on Sale of Investments (14,630,741) (28,315)

236,246,675 233,571,677

Operating profit before working capital changes 2,857,604,146 1,348,179,321 Adjustments for:Trade and other receivables (2,038,525,378) 474,543,067 Trade and other payables 543,125,249 558,700,413

(1,495,400,129) 1,033,243,480

Cash generated from operations 1,362,204,017 2,381,422,801 Direct Taxes (35,995,558) 25,414,580

(35,995,558) 25,414,580 Net cash from operating activities 1,326,208,459 2,406,837,381

B Cash flow from investing activitiesPurchase of Fixed assets (395,054,881) (549,409,983)Purchase of Investments (2,510,736,853) (1,318,669,769)Investment in Subsidiary (499,940) - Acquisition of Business (1,602,143,545) - Sale of Investments 2,515,222,709 656,825,066 Sale of Fixed Assets 6,124,355 1,440,134 Interest received 68,827,929 29,931,952 Dividend received 52,950,921 16,192,295

Net cash used in investing activities (1,865,309,305) (1,163,690,303)

C Cash flow from financing activitiesProceeds from issue of Shares (including Securities Premium) 134,281,182 15,941,220

Dividend (including Dividend Tax paid) (141,537,708) (412,145,049)Net cash used in financing activities (7,256,526) (396,203,829)Net increase in cash and cash equivalents (A+B+C) (546,357,372) 846,943,249

Cash and cash equivalents at the beginning of the year 1,286,706,869 439,763,620

Cash and cash equivalents at the end of the year 740,349,497 1,286,706,869

CONSOLIDATED CASH FLOW FOR THE YEAR ENDED MARCH 31, 2006

Notes:1 Components of cash and cash equivalents include cash, bank balances in current and deposit accounts as

disclosed under Schedule V (b) of the accounts.2 Purchase of fixed assets are stated inclusive of movements of capital work in progress between the

commencement and end of the year and are considered as part of investing activity.


Rupees Rupees

Cash and cash equivalents includes :Cash and Bank Balances 759,690,097 1,284,958,022

Unrealised (Gain)/Loss on foreign currency Cash and cash equivalents (19,340,600) 1,748,847

Total Cash and Cash equivalents 740,349,497 1,286,706,869





A B JaniPartner



14

As at As at

March 31, 2006 March 31, 2005

Rupees Rupees

Schedule I

SHARE CAPITAL :

Authorised :

150,000,000 (previous year 125,000,000)

Equity Shares of Rs. 2/- each 300,000,000 250,000,000

300,000,000 250,000,000

Issued and Subscribed :

112,440,523 (previous year 101,726,575)

Equity Shares of Rs. 2/- each 224,881,046 203,453,150

Paid up :

102,508,885 (previous year 101,726,575)

Equity Shares of Rs. 2/- each fully paid-up 205,017,770 203,453,150

9,931,638 (previous year Nil )

Equity Shares of Rs 2/- each Rs 0.30 paid-up 2,979,491 -

TOTAL 207,997,261 203,453,150

SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET

As at As at

March 31, 2006 March 31, 2005


Schedule II

RESERVES AND SURPLUS :

General Reserve :

As per last Balance Sheet 718,430,284 630,430,284

Add : Transfer from Profit and Loss Account 230,000,000 88,000,000

948,430,284 718,430,284

Securities Premium :


Add : Received during the year 129,737,071 15,216,180

282,503,344 152,766,273

Currency Translation Reserve


Addition during the year (10,099,676) 6,207,680

16,226,670 26,326,346

Capital Reserve 15,964 -

Balance in Profit and Loss Account 4,699,095,828 3,760,456,398

TOTAL 5,946,272,090 4,657,979,301

1. Out of the above 57,600,060 [including Nil (previous year 200) held with nominees] Equity Share of Rs. 2/- each fully

paid-up are held by Mahindra & Mahindra Ltd., the holding company.

2. The above includes 51,000,100 and 25,000,000 Equity Shares of Rs. 2/- each issued as fully paid-up bonus shares by

capitalisation of balance of Profit and Loss Account and General Reserve, respectively.

Sch

ed

ule

III

FIX

ED

AS

SETS

GR

OS

S B

LO

CK

DEP

REC

IA

TIO

NN

ET B

LO

CK

Cost

as a

t April

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ns

Deductions

Co

st

as a

tU

p t

oon a

cquis

itio

n *

For

the

Deductions

Up

toA

s a

tAs a

t

Description o

f Assets

01,

2005

on a

cquis

itio

n*

during t

he y

ear

during t

he y

ear

Marc

h 3

1,

20

06

Marc

h 3

1,

2005

yearduring t

he y

ear

Marc

h 3

1,

20

06

Marc

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1,

20

06

Marc

h 3

1,

2005

Rupees

Rupees

Rupees

Rupees

Ru

pees

Rupees

Rupees

Rupees

Rupees

Ru

pees

Ru

pees

Rupees

Goodw

ill on C

onsolidation

--

866,8

27,7

92

-8

66

,82

7,7

92

--

--

-8

66

,82

7,7

92

-

Leased A

ssets

:

Vehic

les

81,5

57,4

38

-10,8

88,8

80

18,1

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74

,34

5,4

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17,3

10,7

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-17,0

78,5

31

7,0

95,1

07

27

,29

4,1

92

47

,05

1,2

62

64,2

46,6

70

(Refe

r N

ote

5 o

f Schedule

XI)

Oth

er

Assets

:

Land

-91,3

74,7

85

--

91

,37

4,7

85

--

--

-9

1,3

74

,78

5-

Offic

e B

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Pre

mis

es

1,4

10,2

77,8

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182,4

45,9

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797,0

85

-1

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3,5

20

,81

2320,8

81,2

97

49,5

92,1

79

98,0

62,8

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-4

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,53

6,3

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4,5

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Com

pute

rs616,6

31,8

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106,7

48,4

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172,5

39,7

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5,9

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9,9

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84,2

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143,5

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81,1

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113,1

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67,8

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168,8

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Furn

iture

and F

ixtu

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389,0

84,1

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108,4

32,7

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94,7

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348,6

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Pre

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843,6

93,9

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321,1

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Capital W

ork

in P

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ss

198,2

87,6

76

70,4

89,6

53

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Note

: 1)

Fix

ed a

ssets

inclu

de c

ert

ain

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ggre

gating t

o R

s.

44,7

03,6

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pre

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Rs.

74,7

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on w

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endors

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n.

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) * R

efe

r note

3 o

f Schedule

XI

rela

ting t

o S

ubsid

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cquired d

uring t

he y

ear.


15

SCH

ED

ULES F

ORM

ING

PART O

F T

HE C

ON

SO

LID

ATED

BALAN

CE S

HEET (

contd

.)


As at As at

March 31, 2006 March 31, 2005


Schedule IV

INVESTMENTS (AT COST)

Trade:

In Subsidiary Companies :

49,994 Equity shares (previous year Nil)

of Tech Mahindra 499,940 -

Foundation of Rs. 10 each fully paid up(Refer note 2

of schedule XI)

Current Investments

(at lower of cost and fair value )

Non Trade:

Nil (previous year 101,396.50) units of Rs Ni

(previous year Rs.1,001.10) each of FranklinTempleton Mutual Fund- Institutional Income Plan - 101,508,060

92,347.61 (previous year Nil ) units of Rs 1,000.58 each of Franklin Templeton Mutual Fund Weekly Dividend Institutional Plan[Cost Rs. 92,443,267 (previous year Rs. Nil)] 92,401,094 -

38,867.53 (previous year Nil) units of Rs. 1000.20 each of DSP Merrill Lynch - Liquidity Fund 38,875,302 -

100,407.99 (previous year Nil) units of Rs. 1000.00 each of DSP Merrill Lynch - Fixed Term Plan Series B 100,408,363 -

200,000.00 (previous year Nil) units of Rs. 1000.00 200,000,000 each of DSP Merrill Lynch - Fixed Term Plan Series 3c -

Nil (previous year 4,144,029.86) units of Rs. Nil (previous year Rs. 10.21)each of DSP Merrill Lynch Short Term Fund

- 42,326,321

Nil (previous year 8,116,274.55) units of Rs. Nil (previous year Rs 10.03 ) each of DSP Merrill Lynch Floating Rate - Weekly Dividend - 81,429,837

Nil (previous year 4,315,175.02) units of Rs. Nil (previous year Rs. 11.84) each of Prudential ICICI Mutual Fund-Liquid Income Plan - 51,109,288

Nil (previous year 1,119,449.83) units of Rs. Nil (previous year Rs. 10.85) each of Prudential ICICI Mutual Fund Institutional Short Term Plan - 12,150,841

4,748,969.47 (previous year 4,748,969.47) units of Rs. 10.53 (previous year Rs.10.53) each of Prudential ICICI Mutual Fund FMP Yearly Growth Plan 50,000,000 50,000,000

SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET (contd.)

16

As at As at

March 31, 2006 March 31, 2005


Schedule IV (Cont’d)

1,665,474.85 (previous year Nil )

units of Rs. 10.00 each of Prudential ICICI Mutual Fund Liquid Plan Super Institutional

Nil (previous year 9,313,161.61) units of Rs Nil (previous year Rs. 10.81) each of Birla Mutual Fund - Institutional Plan - 100,705,538

5,000,000.00 (previous year Nil) units of Rs 10.00 each of Birla Mutual Fund - Fixed term growth plan

3,071,767.96(previous year Nil) units of Rs 10.02 each of Birla Mutual Fund - Institutional Plan [Cost Rs. 30,810,447 (previous year Rs. Nil)]

5,000,000(previous year Nil ) units of Rs.10.00 each of HSBC Mutual Fund- Fixed Maturity Plan

5,029,509.92 (previous year 6,749,441.71) units of Rs. 10.00 (previous year Rs.10.45) each of HSBC Mutual Fund - Fixed term series Institutional Growth Plan 70,536,265

Nil (previous year 2,696,842.37) units of Rs.Nil (previous year Rs.10.02 ) each of J M Mutual Fund- Short Term Institutional Plan - 27,013,492

6,952,192.63 (previous year 5,035,302.57) units of Rs. 10.03 (previous year Rs.10.02 ) each of J M Mutual Fund- High Liquidity Super Institutional Plan 50,449,649

Nil (previous year 3,034,216.23) units of Rs. Nil (previous year Rs.10.00) each of Kotak Floater Long Term - Weekly Dividend - 30,353,388

4,098,246.52 (previous year Nil) units of Rs. 10.03 each of Kotak Liquid Institutional Premiun weekly dividend

5,000,000 (previous year Nil) units of Rs. 10.00 (previous year Rs. Nil ) each of Kotak Mutual Fund -FMP Growth

5,214,307.74 (previous year 5,048,809.48) units of Rs. 10.03 (previous year Rs.10.03 ) each of Kotak Mutual Fund - Liquid Institiutional Weekly Dividend 50,623,936

116,668,816 -

50,000,000 -

30,786,794 -

50,000,000 -

50,295,099

69,748,080

41,096,908 -

50,000,000 -

52,288,682

Nil (previous year 4,032,914.19) units of Rs.Nil(previous year Rs. 10.02 ) each of Principal Mutual Fund - Floating Rate Fund SMP - 40,415,043



17



As at As at

March 31, 2006 March 31, 2005


Schedule IV (Cont’d)

6,265,066.85 (previous year 1,066,927.90) units of Rs. 10.00 (previous year Rs. 10.04) each of Principal Mutual Fund Liquid Institutional Plan weekly dividend[Cost Rs. 62,701,509 (previous year Rs. 10,712,914)] 62,672,596 10,712,914

Nil (previous year 2,000,000) units of Rs. Nil ( Previous year of Rs. 10.00 ) each of Reliance Mutual Fund-Fixed Term Quarterly Plan Dividend Option - 20,000,000

5,000,000 (previous year 5,000,000) units of Rs. 10.00each of Reliance Mutual Fund-FMP 50,000,000 50,000,000

5,000,000 (previous year Nil ) units of Rs. 9.99 each ofReliance Fixed Tenor Fund Growth Plan[Cost Rs. 50,000,000 (previous year Rs. Nil)] 49,927,500 -

Nil (previous year 3,310,999.22 ) units of Rs. Nil (previous year Rs. 15.28)each of Reliance Mutual Fund - Treasury Plan Institutional Option - 50,586,064

Nil (previous year 2,000,000) units of Rs.Nil ( previous year of Rs. 10 ) each of Reliance Mutual Fund-Growth Plan - 20,000,000

Nil (previous year 9,507,961.29) units of Rs. Nil(previous year Rs. 10.63 ) each of HDFC Cash Management Fund Weekly Dividend - 101,090,809

5,000,000 (previous year 4,409,628.75) units of Rs. 10.00 each (previous year Rs. 11.49 ) each of Chola Fund Liquid Institutional Plus-Dividend Option 50,000,000 50,676,570

Nil (previous year 9,811,360.90 ) units of Rs. Nil (previous year Rs.10.30) each of Standard Chartered Mutual Fund Weekly Dividend Plan - 101,092,372

5,000,000 (previous year Nil ) units of Rs. 9.98 each of Grindlays - FMP[Cost Rs. 50,000,000 (previous year Rs. Nil)] 49,900,000 -

4,600,000 (previous year Nil ) units of Rs. 10.00 each of TATA Fixed Horizon Fund Series III 46,000,000 -

18

As at As at

March 31, 2006 March 31, 2005


Schedule IV (Contd)

90,695.00 (previous year Nil ) units of Rs. 1,135.75each of TATA Mutual Fund Liquid High Investment fund weekly dividend 103,007,090 -

5,000,000 (previous year Nil ) units of Rs. 10.00 each of Sundaram Mutual Fund - FMP 50,000,000 -

5,024,693.83 (previous year Nil ) units of Rs. 10.00each of ABN AMRO Mutual Fund - FMP 50,247,000 -

1,504,323,324 1,112,780,387

1,504,323,324 1,112,780,387

TOTAL 1,504,823,264 1,112,780,387

Note :Refer note 13 of Schedule XI for additional information



19




Schedule V

CURRENT ASSETS, LOANS AND ADVANCES :

Current Assets :(a). Sundry Debtors * :

(Unsecured)Debts outstanding for a period exceeding six months:

: considered good** 145,101,029 189,209,996

: considered doubtful 29,227,059 15,099,557

174,328,088 204,309,553

Other debts, considered good*** 4,232,236,695 2,022,474,011

considered doubtful 401,995 2,419,737

4,406,966,778 2,229,203,301

Less: Provision 29,629,054 17,519,294

* Debtors include unbilled revenue of Rs. 437,865,019 4,377,337,724 2,211,684,007(previous year Rs.346,914,306)

** Net of advances of Rs. 63,188,086 (previous year Rs. Nil) pending adjustments with invoices.

*** Net of advances of Rs. 29,217,991 (previous year Rs. 1,775,117,870) pending adjustments with invoices.

(b) Cash and Bank Balances :

Balance with Scheduled banks : (i) In Current accounts 261,954,020 833,933,251 (ii) In Fixed Deposit accounts 359,943,072 451,024,771

Balance with other banks : (i) In Current accounts 137,793,005 -

759,690,097 1,284,958,022 (c). Loans and Advances :

(Unsecured)Bills of Exchange (considered doubtful) 5,000,000 5,000,000

Less: Provision 5,000,000 5,000,000 -

Advances recoverable in cash or in kind or for value to be received........considered good 440,664,512 243,300,791

........considered doubtful 3,758,992 3,758,992

444,423,504 247,059,783

Less : Provision 3,758,992 3,758,992

440,664,512 243,300,791

440,664,512 243,300,791

TOTAL 5,577,692,333 3,739,942,820


20


As at As at,

March 31, 2006 March 31, 2005

Rupees Rupees

Schedule VI

CURRENT LIABILITIES :

Sundry Creditors :

Total outstanding dues to Small Scale Industrial Undertakings - - Total outstanding dues of Creditors other than Small ScaleIndustrial Undertakings 1,835,918,392 1,290,229,650

TOTAL 1,835,918,392 1,290,229,650

Schedule VII

PROVISIONS:

Provision for taxation (net of payments) 579,912,211 349,598,609

Proposed Dividends 915,187,953 -

Provision for Dividend tax 128,355,110 -

Provision for Gratuity 195,814,001 118,375,000

Provision for Leave Encashment 282,536,954 147,509,996

TOTAL 2,101,806,229 615,483,605


21


Rupees Year ended Year ended

March 31, 2006 March 31, 2005

Rupees Rupees

Schedule VIII

INCOME :

Income from Services (net) 12,398,572,984 9,423,846,117

[Tax deducted at source Rs. 6,468,139

( previous year Rs.9,283,236) ]

Management Fees (Net) 28,094,771 32,565,075

12,426,667,754 9,456,411,192

Interest on :

Deposits with Banks 65,875,883 30,972,159


( previous year Rs. 2,494,297)]

Others [Tax deducted at source Rs. Nil

( previous year Rs.53,839)] 1,261,792 589,253

67,137,674 31,561,412

Dividend received on current investments (non-trade) 52,950,921 16,220,610

Exchange fluctuation (Net) 152,256,314 13,323,871

Profit on Sale of Current Investment (Net) 14,630,741 28,315

Excess Provisions for earlier years /

Sundry Credit Balances Written Back 31,582,315 220,779

Provision for Doubtful Debts/Advances written back 4,549,374 8,502,342

Insurance claim received 179,245 107,312

Miscellaneous Income 16,844,763 15,522,504

TOTAL 12,766,799,101 9,541,898,337

Schedule IX

PERSONNEL

Salaries, wages and bonus 4,956,353,722 3,555,215,450

Contribution to Provident and Other Funds 337,337,164 253,907,360

Staff Welfare 330,028,060 167,047,777

TOTAL 5,623,718,946 3,976,170,587

SCHEDULES FORMING PART OF THE CONSOLIDATED PROFIT & LOSS ACCOUNT (contd.)

22

Rupees Year ended Year ended

March 31, 2006 March 31, 2005

Rupees Rupees

Schedule X

OPERATING AND OTHER EXPENSES

Power 81,870,403 46,987,908

Rent 143,470,350 160,026,515

Rates and taxes 9,472,617 4,559,252

Communication expenses 283,214,175 227,768,973

Travelling expenses 1,816,177,397 2,075,755,247

[Net of recoveries Rs.12,654,700

( previous year Rs.51,187,284)]

Recruitment expenses 71,971,334 32,735,064

Hire Charges [includes car lease rentals Rs. 4,102,478 108,583,870 118,485,525


Sub-contracting costs 763,788,383 799,891,178

Repairs and Maintenance :

Buildings (including leased premises) 14,408,158 14,689,134

Machinery 35,829,207 22,011,760

Others 35,512,676 19,202,163

85,750,041 55,903,057

Insurance 34,865,596 24,998,794

Professional fees 112,945,402 132,193,255

Software Packages 141,622,275 80,029,919

Training 91,262,401 71,425,395

Advertising, Marketing and Selling expenses 5,215,153 82,224,380

Commission on Services Income 39,821,048 34,378,472

Loss on sale of fixed assets 4,407,226 3,357,211

[Net of write back of leased liability

agregating to Rs 1,560,859 (Previous year Rs Nil)]

Excess of cost over fair value of current investments 267,194 155,364

Advances / debts written off 372,599 13,397,660

Provision for Doubtful Debts 16,659,134 14,180,376

Fixed Assets written off - 47,505

Donations 154,858,594 3,681,840

Miscellaneous expenses * 157,646,778 147,805,142

TOTAL 4,124,241,970 4,129,988,032

* includes Printing and Stationery expenses, Hospitality expenses, Conveyance, etc.


23

SCHEDULES FORMING PART OF THE CONSOLIDATED PROFIT & LOSS ACCOUNT (contd.)


1. Significant accounting policies:

(a) Basis for preparation of accounts:

The accompanying Consolidated Financial Statements of Tech Mahindra Limited (TML) (“the holding company”) (formerly known as

Mahindra-British Telecom Limited) and its subsidiaries are prepared under the historical cost convention in accordance with the

generally accepted accounting principles applicable in India (Indian GAAP), the provisions of the Companies Act, 1956 and the

Accounting Standards issued by The Institute of Chartered Accountants of India to the extent possible in the same format as that

adopted by the holding company for its separate financial statements.

The financial statements of the subsidiaries used in the consolidation are drawn upto the same reporting date as that of the Holding

company namely March 31, 2006.

(b) Principles of consolidation:

The financial statements of the holding company and its subsidiaries have been consolidated on a line by line basis by adding together

the book value of like items of assets, liabilities, income, expenses, after eliminating intra-group transactions and any unrealized gain

or losses on the balances remaining within the group in accordance with the Accounting Standard - 21 (AS 21) on “Consolidated

Financial Statements” issued by the Institute of Chartered Accountants of India.

The financial statements of the holding company and its subsidiaries have been consolidated using uniform accounting policies for like

transaction and others events in similar circumstances.

The excess of cost of investments in the subsidiary company/s over the share of the equity of the subsidiary company/s at the date on

which the investment in the subsidiary company/s is made is recognized as 'Goodwill on Consolidation' and is grouped with Fixed

Assets in the Consolidated Financial Statements.

Alternatively, where the share of equity in the subsidiary company/s as on the date of investment is in excess of cost of the

investment, it is recognized as 'Capital Reserve' and grouped with 'Reserves and Surplus', in the Consolidated Financial Statements.

Minority interest in the net assets of the consolidated subsidiaries consists of the amount of equity attributable to the minority

shareholders at the dates on which investments are made in the subsidiary company/s and further movements in their share in the

equity, subsequent to the dates of investments.

(c) Use of Estimates:

The preparation of Consolidated Financial Statements, in conformity with the generally accepted accounting principles, requires

estimates and assumptions to be made that affect the reported amounts of assets and liabilities on the date of financial statements

and the reported amounts of revenues and expenses during the reported year. Differences between the actual results and estimates

are recognised in the year in which the results are known/materialised.

(d) Assets taken on lease:

Assets taken on finance lease on or after April 1, 2001 are accounted for as fixed assets in accordance with Accounting Standard 19

(AS 19) on “Leases”, issued by The Institute of Chartered Accountants of India. Accordingly, the assets have been accounted at fair

value. Lease payments are apportioned between finance charge and reduction of outstanding liability. (Refer note 7 below)

(e) Fixed Assets:

Fixed assets are stated at cost less depreciation. Costs comprise of purchase price and attributable costs, if any.

(f) Depreciation on fixed assets:

Depreciation for all fixed assets including for assets taken on lease is computed using the straight-line method based on estimated

useful lives. Depreciation is charged on a pro-rata basis for assets purchased or sold during the year. Management's estimate of the

useful life of fixed assets is as follows:

Significant Accounting Policies and Notes on Accounts Forming Part of Consolidated Accounts for The Year Ended March 31, 2006

Buildings 15 years

Computers 3-5 years

Plant and machinery 3-5 years

Furniture and fixtures 5 years

Vehicles 5 years

SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET AND PROFIT AND LOSS ACCOUNT

Schedule XI

24


(g) Impairment of Assets

At the end of each year, the company determines whether a provision should be made for impairment loss on fixed assets by

considering the indications that an impairment loss may have occurred in accordance with Accounting Standard 28 ''Impairment of

Assets'' issued by the Institute of Chartered Accountants of India. Where the recoverable amount of any fixed asset is lower than its

carrying amount, a provision for impairment loss on fixed assets is made for the difference.

(h) Investments:

Current investments are carried at lower of cost and fair value. Long term investments are carried at cost. Provision is made to

recognise a decline other than temporary in the carrying amount of long term investment.

(i) Revenue recognition:

Revenue from software consists primarily of revenue earned from services performed on 'time and material' basis. The related

revenue is recognized as and when services are performed. Income from service is performed by the Company pending receipt of

purchase orders from customers, which are invoiced subsequently on receipt thereof, are recognized as unbilled revenue.

The Company also performs time bound fixedprice engagements, under which revenue is recognized using the percentage of

completion method of accounting, unless work completed cannot be reasonably estimated.

Dividend income is recognized when the Company's right to receive dividend is established. Interest income is recognized on time

proportion basis.

Income from training is recognized over the period of instruction.

(j) Foreign currency transactions:

Transactions in foreign currencies are recorded at the exchange rates prevailing on the date of transaction. Monetary items are

translated at the year-end rates. The exchange difference between the rate prevailing on the date of transaction and on the date of

settlement as also on translation of monetary items at the end of the year, is recognised as income or expense, as the case may be,

except where they relate to fixed assets where they are adjusted to the cost of fixed assets.

Any premium or discount arising at the inception of the forward exchange contract is recognized as income or expense over the life of

the contract, except in the case where the contract is in connection with purchase of fixed asset, where the same is adjusted to the cost

of fixed assets. Exchange difference on a forward exchange contract entered into to hedge the foreign currency risk of a firm

commitment is the difference between the foreign currency amount of the contract translated at the exchange rate at the

reporting/settlement date and the said amount translated at the later date of inception of the contract / last reporting date.

(k) Translation and Accounting of Financial Statement of Foreign subsidiaries :

The financial statements are translated to Indian Rupees in accordance with the guidance issued by the Institute of Chartered

Accountants of India in the background material to AS 21 as follows :

1. All incomes and expenses are translated at the average rate of exchange prevailing during the year

2. Assets and liabilities are translated at the closing rate on the Balance sheet date

3. Share Capital is translated at historical rate

4. The resulting exchange differences are accumulated in currency translation reserve.

(l) Retirement Benefits:

Provision is made for gratuity and encashment of unavailed leave on retirement on the basis of actuarial valuations.

(m) Income taxes:

Tax expense comprises of current tax, deferred tax and fringe benefit tax. Current tax is measured at the amount expected to be paid

to/recovered from the tax authorities, using the applicable tax rates. Deferred tax assets and liabilities are recognised for future tax

consequences attributable to timing differences between taxable income and accounting income that are capable of reversal in one or

more subsequent years and are measured using relevant enacted tax rates. Fringe benefits tax is recognized in accordance with the

relevant provisions of the Income-tax Act, 1961 and the Guidance Note on Fringe Benefits Tax issued by the ICAI. Tax on distributed

profits payable by Indian Companies in accordance with the provisions of the Income-tax Act, 1961 is disclosed in accordance with the

Guidance Note on Accounting for Corporate Dividend Tax issued by the ICAI.

(n) Contingent Liabilities:

These, if any, are disclosed in the notes and accounts. Provision is made in the accounts if it becomes probable that any outflow of

resources embodying economic benefits will be required to settle the obligation.


SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET AND PROFIT AND LOSS ACCOUNT (contd.)

25

2. The consolidated financial statements present the consolidated accounts of TML, which consists of the accounts of the

holding company and of the following subsidiaries

Name of the Subsidiary company Country of incorporation Extent of Holding (%)

as on March 31, 2006

Tech Mahindra (Americas) Inc. United States of America 100 %

(Formerly known as MBT International Inc.)

Tech Mahindra GmbH Germany 100 %

(Formerly known as MBTI GmbH)

Tech Mahindra (Singapore) Pte. Ltd. Singapore 100 %

(Formerly known as MBT Software

Technologies Pte. Ltd., Singapore)

Tech Mahindra (Thailand) Limited Thailand 99.99%

Tech Mahindra (R & D Services) Limited India 99.97%

(Formerly known as Axes Technologies (India)

Private Limited) and its following subsidiaries:

a) Tech Mahindra (R & D Services) Inc. United States of America 99.97%

(Formerly known as Axes Technologies Inc.)

b) Tech Mahindra (R & D Services) Pte. Ltd., Singapore 99.97%

(Formerly known as Axes Technologies

(Asia pacific) Pte. Ltd.)

TML has an investment in a subsidiary company viz. Tech Mahindra Foundation (TMF). TMF has been incorporated primarily for

charitable purposes, where in the profits will be applied for promoting its objects. Accordingly, the accounts of TMF are not

consolidated in these financial statements, since TML will not derive any economic benefits from its investments in TMF.

3. During the period, vide Share Purchase Agreement dated 15th November, 2005, TML has acquired Tech Mahindra (R&D services)

Limited (Formerly known as Axes Technologies (India) Private Limited.) for a initial consideration of Rs. 1,755,060,471 (including

stamp duty). As a result, TMRDL and its two wholly owned subsidiaries have become subsidiary / step subsidiaries of the Company

with effect from the date of acquisition i.e. 28th November, 2005.

The terms of purchase also provide for payment of contingent consideration to all the selling shareholders, payable over three years

and calculated based on achievement of specific targets. The contingent consideration is payable in cash and cannot exceed Rs.

640,780,000. The consideration so payable would be accounted in the books of account in the year of achieving the milestones

under the Agreement and payment thereof. Accordingly Rs. 32,828,677 has been provided for during the year.

The excess of the above cost to TML over its share of the equity in TMRDL at the date on which the investment is made aggregating to

Rs. 866,827,792 has been recognized as 'Goodwill on Consolidation' and disclosed along with Fixed Assets (Refer Schedule 3).

4. The estimated amount of contracts remaining to be executed on capital account, and not provided for as at March 31, 2006 Rs.

422,300,250 (Previous year: Rs. 92,431,940).

5. Contingent liabilities:

i. Income tax demands disputed in appeal by the Company Rs. 43,206,152 (Previous year Rs. 87,462,656) awaiting decision.

ii. Bank Guarantees outstanding Rs. 114,554,540 (Previous year: Rs. 53,529,879)

iii. Claims from Statutory Authorities (Provident Fund)Rs. 1,500,000 (Previous Year Rs. Nil)

6. Confirmation letters have been sent to the debtors of TML and their balances are subject to reconciliation and consequent

adjustments, if any, on receipt of such confirmation.

7. Assets acquired on lease on or after April 1, 2001 :

TML has acquired vehicles on lease, the fair value of which aggregates to Rs. 74,345,454. As per AS-19 on Leases, issued by The

Institute of Chartered Accountants of India TML has capitalised the said vehicles at their fair values as the leases are in the nature of

finance leases as defined in AS-19. Lease payments are apportioned between finance charge and deduction of outstanding liabilities.

The details of lease rentals payable in future are as follows:


26


Not later than 1 year Later than 1 year

not later than 5 years

Minimum Lease rentals payable (Previous year 19,147,044 19,297,314

Rs. 22,372,588 and Rs. 33,467,813 respectively)

Present value of Lease rentals payable (Previous year 17,368,509 15,466,831

Rs. 20,294,438 and 26,209,591 respectively)

8. As per Accounting Standard 17 on Segment reporting issued by the Institute of Chartered Accountants of India, the Primary

Segment of the Company is Geographical by location of customers. The Secondary Segments are identified based on the line of

operations. The Accounting principles consistently used in the preparation of the financial statements are also applied to record

income and expenditure in individual segments. There are no inter-segment transactions during the year.

The Primary Geographical segments consist of regions of Europe, United States of America (USA) and Rest of the World (ROW). The

Secondary Segments consist of services provided in the Telecom sector and other sectors.

Segregation of assets, liabilities, depreciation and other non-cash expenses into various primary segments has not been done as the

assets are used interchangeably between segments and the management is of the view that it is not practical to reasonably allocate

liabilities and other non-cash expenses to individual segments and an adhoc allocation will not be meaningful.


A. PRIMARY SEGMENTS

For the year ended March 31, 2006 GEOGRAPHICAL SEGMENTS BASED ON

LOCATION OF CUSTOMERS

PARTICULARS EUROPE USA ROW TOTAL

REVENUES 9,532,247,435 2,226,414,827 668,005,492 12,426,667,754

DIRECT EXPENSES 5,216,237,872 1,594,188,623 586,040,493 7,396,466,988

SEGMENTAL OPERATING INCOME 4,316,009,563 632,226,204 81,965,001 5,030,200,766

UNALLOCABLE EXPENSES

1. Depreciation 397,480,714

2. Other Unallocable Expenses 2,351,493,928

Total 2,748,974,642

OPERATING INCOME 2,281,226,124

Other Income 340,131,347

NET PROFIT BEFORE TAXES 2,621,357,471

INCOME TAXES

- Current (207,680,073)

- Deferred (24,529,415)

- Fringe Benefit Tax (35,390,000)

NET PROFIT AFTER TAXES 2,353,757,983

(in Rupees)

27


B. SECONDARY SEGMENTS:

Revenues from secondary segments are as under

Segregation of assets into secondary segments has not been done as the assets are used interchangeably between segments.

Consequently the carrying amounts of assets by location of assets is not given.


assets are used interchangeably between segments and the management is of the view that it is not practical to reasonably allocate


B. SECONDARY SEGMENTS

Revenues from secondary segments are as under

Sector Amount in Rs.

Telecom 12,268,248,687

Others 158,419,067

Total 12,426,667,754


Telecom 9,456,411,192

Others -

Total 9,456,411,192

(in Rupees)


A. PRIMARY SEGMENTS

For the year ended March 31, 2005 GEOGRAPHICAL SEGMENTS BASED ON

LOCATION OF CUSTOMERS


REVENUES 8,415,699,981 659,978,323 380,732,888 9,456,411,192

DIRECT EXPENSES 5,221,822,735 484,595,737 265,805,554 5,972,224,026





Total 2,455,066,667


Other income 85,487,145

NET PROFIT BEFORE TAXES 1,114,607,644

INCOME TAXES

- Current (142,248,589)

- Deferred 51,540,476

NET PROFIT AFTER TAXES 1,023,899,531

28



Consequently the carrying amount of assets by location of assets is not given.

9. A) TML has instituted “Employee Stock Option Plan 2000” (ESOP) for its employees and directors. For this purpose it had created a

trust viz. TML ESOP trust. In terms of the said Plan, the trust has granted options to the employees and directors in form of warrant

which vest at the rate of 33.33% on each successive anniversary of the grant date. The options can be exercised over a period of 5

years from the date of grant. Each warrant carries with it the right to purchase one equity share of TML at the exercise price

determined by the trust on the basis of fair value of the equity shares at the time of grant.

The details of the options are as under:

Out of the options outstanding at the end of the year, 504,300 (Previous year 1,357,380) options have vested, which have not been

exercised.

B) During the year, TML has instituted “Employee Stock Option Plan 2004” (ESOP 2004) for its employees. In terms of the said Plan,

the Compensation Committee has granted options to employees of TML and its subsidiary companies. The options are divided into

upfront options and Performance options. The Upfront Options are divided into three sets which will entitle holders to subscribe to

option shares at the end of First year, Second year and Third year. The vesting of the Performance Options will be decided by the

Compensation Committee based on the performance of employees.

Options granted and outstanding at the end of the period are 10,219,860 (Previous year 10,219,860).

2,271,078 (Previous year Nil) options have vested as at the end of the year.

C) During the year, TML has instituted “Employee Stock Option Plan 2006 “ (ESOP 2006) for the employees and directors of TML and

its subsidiary companies. In terms of the said plan, the compensation committee has granted options to the employees of the

Company. The vesting of the options is 10% , 15%, 20%, 25%,and 30 % of total options granted after 12, 24, 36, 48 and 60 months,

respectively from the date of grant. The maximum exercise period is 7 years from the date of grant.


Out of the options outstanding at the end of the year, none of the options have vested.

March 31, 2006

Options outstanding at the -

beginning of the year

Options granted during the year 4,633,680

Options lapsed during the year -

Options cancelled during the year 21,300

Options exercised during the year -

Options outstanding at the end of the year 4,612,380

Weighted average share price of the Rs. 83

above options on the date of the exercise

March 31, 2006 March 31, 2005

Options outstanding at the beginning of the year 2,229,740 1,818,080

Options granted during the year 345,000 832,500

Options lapsed during the year 313,340 58,320

Options cancelled during the year 259,090 -

Options exercised during the year 782,310 362,520

Options outstanding at the end of the year 1,220,000 2,229,740


29


D) TML uses the intrinsic value-based method of accounting for stock options granted after April 1, 2005. TML has accounted for the

ESOPs based on Guidance Note on Accounting for Employee Share-based Payments, issued by the Institute of Chartered Accountants

of India. Had the compensation cost for TML stock based compensation plan been determined in the manner consistent with the fair

value approach as described in the Guidance note, TML's net income would be lower by Rs 36,942 and earnings per share as reported

would be lower as indicated below:

10. As required under Accounting Standard 18 (AS 18) on ''Related Party Disclosures'', following are details of transactions during

the year with the related parties of TML as defined in AS 18:

Name of Related Party Relation

Mahindra & Mahindra Limited Holding Company

British Telecommunications, plc. Promoter holding more than 20% stake

Mahindra-BT Investment Company (Mauritius) Ltd. Promoter Group Company

Tech Mahindra Foundation 99.98% Subsidiary Company

Mahindra Engineering and Chemical Products Limited Fellow Subsidiary Company

Mahindra Engineering Design and Development Company Limited Fellow Subsidiary Company

Bristlecone India Limited Fellow Subsidiary Company

Mahindra & Mahindra Contech Limited Fellow Subsidiary Company

Mr. Robert John Helleur* Key Management Personnel

Executive Director and Chief Executive Officer

Mr. Vineet Nayyar* Key Management personnel

Vice Chairman and Managing Director

*for part of the previous year

(a) List of Related Parties and Relationships


Net profit Rupees

As Reported 2,353,720,201

Less:Total stock-based employee compensation expense

determined under fair value base method. 36,942

Adjusted net profit 2,353,683,259

Basic earnings per share

- As reported 22.63

- Adjusted 22.63

Diluted earnings per share

- As reported 18.32

- Adjusted 18.32

The fair value of each warrant is estimated on the date of

grant based on the following assumptions:

Dividend yield (%) 6.89

Expected life 5 years

Risk free interest rate (%) 7.12

Volatility -

30


(b) Related Party Transactions :

(Figures in brackets “[ ]”are for the previous year)

Out of the above items transactions with Promoter companies, Subsidiary Companies and Key Management Personnel in the

excess of 10% of the total related party transactions are as under:

(Amount in Rupees)

Transactions For the year ended For the year ended

March 31, 2006 March 31,2005

Reimbursement of Expenses (net) -

Paid/(Receipt)

Promoter Companies

- British Telecommunications plc. (87,292,381) (51,069,289)

Income from Services

Promoter Companies

- British Telecommunications plc. 8,529,065,460 7,949,298,612

*for part of the previous year

Transactions Promoter Subsidiary Fellow subsidiary Key Management

Companies Company Companies Personnel

Rupees Rupees Rupees Rupees

Reimbursement of (83,406,400) - 25,499,644 -

Expenses (Net)-Paid/ [(43,642,006)] [-] [119,746] [-]

(Receipt)

Income from Services & 8,545,278,618 - 3,735,227 -

Management Fees [7,933,535,493] [-] [1,525,000] [-]

Sub-contracting cost - - - -

[-] [-] [5,841,954] [-]

Dividend Paid 122,604,006 - - -

[363,789,702] [-] [-] [152,652]

Investment - 499,940 - -

[-] [-] [-] [-]

Donations - 150,000,000 - -

[-] [-] [-] [-]

Salary and Perquisites - - - 17,102,700

[-] [-] [-] [8,188,440]

Debit / (Credit) balances (Net) 3,031,737,577 - (5,278,085) -

outstanding as on March 31, 2006 [1,707,318,367] [-] [(908,470)] [-]


31


Other related parties of TML are as under:

Automartindia Limited

Bristlecone Ltd. Cayman

Bristlecone Inc.

Mahindra Gesco Developers Ltd

Mahindra Acres and Consulting Engineers Ltd

Mahindra Ashtech Ltd

Mahindra Automotive Steels Pvt. Ltd

Bristlecone India Ltd.

Bristlecone GmbH

Bristlecone Singapore Pte. Ltd.

Mahindra (China) Tractor Company Ltd.

Mahindra Engg & Chem Products Ltd.

Mahindra Engineering Design & Development Company Ltd.

Mahindra Europe s.r.l.

Mahindra Gujarat Tractor Ltd.

Mahindra Holdings & Finance Ltd.

Mahindra Holidays & Resorts India Ltd.

Mahindra Holidays & Resorts (USA) Inc.

Mahindra Insurance Brokers Ltd.

Mahindra Infrastructure Developers Ltd.

Mahindra Intertrade Ltd.

Bristlecone UK Ltd.

Mahindra International Ltd.

Mahindra World City Developers Ltd.

Mahindra Logisoft Business Solutions Ltd.

Mahindra Middleeast Electrical Steel Service Centre (FZE)

Mahindra & Mahindra Financial Services Ltd.

Mahindra & Mahindra South Africa (Pty) Ltd.

Mahindra Overseas Investment Company (Mauritius) Ltd.

Mahindra Realty Ltd.

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Mahindra Renault Pvt. Ltd.

Mahindra Steel Service Centre Ltd.

Mahindra Shubhlabh Services Ltd.

Mahindra SAR Transmission Pvt Ltd.

Mahindra USA Inc.

Mahindra Ugine Steel Company Ltd.

Mahindra World City (Jaipur) Ltd.

NBS International Ltd.

Tech Mahindra (R & D Services) Inc

Tech Mahindra (R & D Services) Pte Ltd.

Stokes Group Limited

Jensand Limited

Stokes Forgings Dudley Limited

Stokes Forgings Limited Plexion

Technologies (India) Private limited

Plexion Technologies (UK) Limited

Plexion Technologies GmbH

Plexion Technologies Incorporated

Tech Mahindra Foundation

Mahindra Inframan Water Utilities Pvt. Ltd.

Mahindra Sona Ltd.

Mahindra Water Utilities Ltd.

PSL Erickson Ltd.

Owens Corning (India) Ltd.

Siroplast Ltd.

Mahindra Construction Company Ltd.

Officemartindia.com Ltd.

Rathna Bhoomi Enterprises Pvt. Ltd.

Kota Farm Services Ltd.

Mriyalguda Farm Solution Ltd.

Mega One Stop Farm Services Ltd.

There have been no transactions with the aforesaid companies during the year.

Dividend Paid

Promoter Companies

- Mahindra & Mahindra Ltd. 69,120,072 207,360,216

- British Telecommunications plc. 52,143,163 156,429,486

121,263,235 363,789,702

Salary and Perquisites

Key Management Personnel

- Mr. Robert John Helleur* - 4,846,288

- Mr. Vineet Nayyar* 17,102,700 3,342,152

17,102,700 8,188,440

(Amount in Rupees)


March 31, 2006 March 31,2005

*for part of the previous year*for part of the previous year


32


Tech Mahindra Limited11. The tax effect of significant timing differences that has resulted in deferred tax assets and liabilities are given below:

Deferred Tax March 31, 2006 March 31, 2005

Rupees Rupees

a) Deferred tax liability:

Depreciation (1,435,453) (1,226,029)

b) Deferred tax asset :

Gratuity, Leave Encashment etc. 5,771,675 2,899,302

Doubtful Debts 532,440 334,107

Carry forward of Net operating losses of a subsidiary 106,809,277 131,721,132

Total Deferred Tax Asset (Net) 111,677,939 133,728,512

Tech Mahindra (Americas) Inc. has net operating losses aggregating to Rs. 255,247,129 which are available to be carried forward. As

stated in the audited financials of Tech Mahindra (Americas) Inc., Tech Mahindra (Americas) Inc. expects to be able to utilize the entire

deferred tax benefit on the said losses.

12. Exchange gain/(loss)(net) accounted during the year:

a) TML enters into foreign exchange forward contracts to offset the foreign currency risk arising from the amounts denominated in

currencies other than the Indian rupee. The counter party to TML's foreign currency forward contracts is generally a bank. These

contracts are entered into to hedge the foreign currency risks of firm commitments.

b) The following are the outstanding Forward Exchange Contracts entered into by TML as on 31st March, 2006:

Currency Amount outstanding at year end Amount outstanding at Exposure to Buy/Sell

in Foreign currency year end in Rs.

US Dollar 100,489,700 4,482,845,517 Sell

UK Pound 15,000,000 1,162,500,000 Sell

c) The year end foreign currency exposures that have not been specifically hedged by a derivative instrument or otherwise are given

below:

Amounts receivable in foreign currency on account of the following:

In Rupees In foreign currency

Debtors Rs. 2,814,528,306 Aud 683,965

Eur 1,562,766

Gbp 34,825,858

Nzd 198,272

Sgd 604,510

Loans and advances Rs. 113,073,519 Gbp 1,432,401

Thb 186,500

Dhr 75,804

Eur 4,190

Aud 20,889

Cash/Bank balances (Net) Rs. 31,372,790 Aud 772,810

Nzd 236,419

Twd 136,700



33

2006 2005

Rupees Rupees

a. Net Profit after tax 2,353,757,983 1,023,899,531

Less: Minority Interest 37,782 -

Net profit attributable to shareholders 2,353,720,201 1,023,899,531

b. Weighted average number of Equity Shares

Basic 103,998,631 101,726,575

Add: ESOPs outstanding at the end of the year 16,052,240 12,449,600

Partly paid-up shares not entitled for dividend 8,441,892 -

Diluted 128,492,763 114,176,175

c. Nominal value of equity share Rs. 2 Rs. 2

13. Earning Per Share is calculated as follows:

Amounts payable in foreign currency on account of the following:

In Rupees In foreign currency

Creditors (Net) Rs. 468,476,302 Eur 1,063,457

Gbp 420,755

Sgd 617,040

Usd 8,113,114

Other current liabilities (Net) Rs. 117,312,888 Gbp 1,513,715

d) The amount of exchange difference in respect of forward exchange contracts to be recognized in the profit and loss account for

subsequent accounting year aggregates to Rs. 51,402,677 (Gain) (previous year 2,112,765)

e) Exchange gain/(loss)(net) accounted during the year:

Particulars 2006 2005

In Rupees In Rupees

Income from services (68,509,521) (2,799,680)

Others 148,030,658 13,323,871

The disclosures made in paragraphs (b) and (c) have been made consequent to an announcement by the Institute of Chartered

Accountants of India in December, 2005, which is applicable to the financial periods ending on or after 31st March, 2006. Therefore,

figures for the previous year have not been disclosed.

14. Details of Investments Purchased and Sold during the year by TML

March 31, 2006 March 31, 2006

Particulars Units Cost

TEMPLETON MUTUAL FUND

Short Term Income Plan Monthly 87,993.54 90,000,000.00

DSP MERRILL LYNCH

Short Term Fund Dividend 4,791,291.35 50,000,000.00

Short Term Fund Monthly Dividend 9,145,199.02 94,430,581.53

PRUDENTIAL ICICI MUTUAL

Short Term Dividend Plan 4,553,360.84 50,000,000.00

Short Term Cumulative Plan 3,917,942.61 50,000,000.00

Liquid Institutional Plan Plus 8,428,718.33 100,000,000.00


34


March 31, 2006 March 31, 2006


BIRLA SUNLIFE MUTUAL INSTITUTIONAL PLAN

Institutional Premium Weekly Dividend 10,067,379.91 100,941,591.45

Birla Bond Plus Institutional (Fortnightly Dividend) 2,864,891.71 30,000,000.00

HSBC MUTUAL FUND

HSBC Income Fund Short Term Institutional Dividend 4,652,764.21 50,000,000.00

DEUTSCHE MUTUAL FUND

Institutional Plan Weekly Dividend Plan 4,981,419.31 50,000,000.00

JM MUTUAL FUND

Short Term Fund-Institutional Plan-Dividend 3,904,076.83 40,000,000.00

High Liquidity Fund- Super Institutional 10,126,163.18 101,567,780.87

Plan-Weekly Dividend

Short Term Fund-Institutional Plan-Growth 4,423,760.91 50,000,000.00

KOTAK MUTUAL FUND

Liquid Institutional Premium - Weekly Dividend 4,982,163.85 50,000,000.00

Kotak Bond Short Term Growth 4,153,479.37 50,000,000.00

Kotak Bond Short Term Monthly Dividend 3,975,036.77 40,000,000.00

PRINCIPAL MUTUAL FUNDS

Institutional Plan - Dividend reinvestment monthly 4,963,173.25 50,000,000.00

RELIANCE MUTUAL FUND

Reliance Short Term - Growth Plan 4,289,231.46 50,000,000.00

Reliance Treasury Plan Retail Option Weekly Dividend 4,968,128.58 51,385,850.70

HDFC Cash Management Fund Weekly Dividend 4,701,899.57 50,000,000.00

Chola Liquid Institutional Plus Weekly Dividend 4,274,271.45 50,000,000.00

ING Vysya Liquid Fund Institutional -Weekly Dividend 4,984,100.72 50,000,000.00

Tata Short term Bond Fund Dividend 9,184,048.92 10,000,000.00

15. Previous year's figures have been regrouped wherever necessary, to conform to the current year's classification.

Signatures to Schedules I to XIAs per our attached report of even date


Mr. Anand G.Mahindra - Chairman Mr. Vineet Nayyar - Vice Chairman & Managing Director Mr. Bharat Doshi - Director Mr. Al-Noor Ramji - DirectorMr. Clive Goodwin - Director Dr. Raj Reddy - Director Mr. Anupam Puri - Director Mr. Arun Seth - Director Hon. Akash Paul - Director Mr. Ulhas N. Yargop - Director


For Deloitte Haskins & SellsChartered Accountants

A B JaniPartner




35

To the Members of Tech Mahindra Limited (Formerly known as Mahindra-British Telecom Limited)

1. We have audited the attached Balance sheet of Tech Mahindra Limited (Formerly known as Mahindra-British Telecom Limited) as

at 31st March 2006, the Profit and Loss Account and the Cash Flow Statement for the year ended on that date, annexed thereto.

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on

these financial statements based on our audit.

2. We conducted our audit in accordance with the auditing standards generally accepted in India. Those Standards require that we

plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material

misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial

statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as

well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our

opinion.

3. As required by Companies (Auditor's Report) Order, 2003 issued by the Central Government in terms of section 227 (4A) of the

Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred to above, we report that:

a)We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the

purposes of our audit;

b)In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our

examination of the books;

c) The Balance sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books

of account;

d)In our opinion, the Balance sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the

accounting standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956;

)

)

ste On the basis of written representations received from the directors as on 31 March, 2006 and taken on record by the Board stof Directors, we report that none of the directors is disqualified as on 31 March, 2006 from being appointed as a director in

terms of clause (g) of sub- section (1) of section 274 of the Companies Act, 1956.

f In our opinion and to the best of our information, and according to the explanations given to us, the said accounts read

with the Significant Accounting Policies and notes thereon, give the information required by the Companies Act, 1956, in the

manner so required and give a true and fair view in confirmity with the accounting principles generally accepted in India.

sti) in case of the Balance sheet, of the state of affairs of the Company as at 31 March, 2006;

ii) in case of the Profit and Loss Account, of the profit for the year ended on that date; and

iii) in the case of the Cash Flow Statement, of the cash flows for the year ended on that date.

AUDITOR'S REPORT


A B JaniPartner

Membership No. 46488Mumbai Dated : May 15, 2006

36

and are prima facie reasonable having regard to prevailing

market prices where such market prices are available with

the Company.

vii) The Company has not accepted any deposits from the

public.

viii) In our opinion, the company has an internal audit

system commensurate with the size of the Company and

nature of its business.

ix) According to the information and explanations given to

us, the Central Government has not prescribed

maintenance of cost records under clause (d) of sub-

section (1) of Section 209 of the Act. Therefore the

provisions of clause (viii) of the Companies (Auditor's

Report) Order, 2003 is not applicable to the Company.

x) According to information and explanations given to us in

respect of statutory and other dues:

(a) The company has generally been regular in

depositing undisputed statutory dues in respect of

Provident Fund, Employees' State Insurance, Income-tax,

Sales-tax, Wealth tax, Service tax, Custom duty, cess and

any other material statutory dues with the appropriate

authorities during the year.

(b) According to information and explanation given to us

there are no dues of Sales tax / Income-tax / Customs duty

/ wealth tax / Service tax/ excise duty and cess, which have

not been deposited with the appropriate authorities on

account of any dispute, except in case of income-tax which

is as detailed below:

Xi) The Company has no accumulated losses at the end of the

financial year and it has not incurred cash losses in the

current year and in the immediately preceding financial

year.

ANNEXURE TO THE AUDITOR'S REPORT

Re: Tech Mahindra Limited (Formerly known as

Mahindra-British Telecom Limited)

(Referred to in Paragraph 3 of our report of even date)

i) The nature of the Company's activities are such that

clauses (xiii) and (xiv) of paragraph 4 of the Companies

(Auditor's Report) Order, 2003 are not applicable to the

Company for the year.

ii) (a) The Company has maintained proper records

showing full particulars, including quantitative details and

situation of fixed assets.

(b) All fixed assets have not been physically verified by the

management during the year but there is a regular program

of verification which, in our opinion, is reasonable having

regard to the size of the Company and the nature of its

assets. No material discrepancies were noticed on such

verification.

(c) The Company has not disposed off a substantial part of

fixed assets during the year.

iii) The activities of the Company and the nature of its business

do not involve use of inventory. Accordingly, clause (ii) of

the Companies (Auditor's Report) Order, 2003 is not

applicable

iv) (a) The Company has granted unsecured loan to one of its

subsidiary companies covered in the register maintained

under Section 301 of the Companies Act, 1956. The

maximum amount involved during the year and the year-

end balance of loan granted was Rs.223,050,000/-.

(b) In our opinion, the rate of interest and other terms and

conditions of such loan are not, prima facie, prejudicial to

the interest of the Company.

(c) As per the terms of the contract the principal amounts

and interest amounts are not due for re-payment as at the

year-end and accordingly clause (d) of clause (iii) is not

Applicable.

(d) There are no loans taken from Companies covered in

the register maintained under Section 301 of the

Companies Act, 1956 and hence clause (e), (f), (g) and (h)

of clause (iii) are not applicable to the Company.

v) In our opinion, and according to the information and

explanations given to us, there is an adequate internal

control system commensurate with the size of the Company

and nature of its business with regard to purchase of fixed

assets and sale of services. During the course of our audit

we have not observed any continuing failure to correct

major weaknesses in the internal control system.

vi) (a) According to the information and explanations given to

us, we are of the opinion that the particulars of

contracts/arrangements that need to be entered into the

register maintained under Section 301 of the Companies

Act, 1956 have been so entered.

(b) According to the information and explanations given to

us, where transactions in pursuance of such

contracts/arrangements are in excess of Rs. 5 lakhs in

respect of any party during the year, these are at

prices determined in negotiations with the said parties

Forum where Nature of Amount Financial

dispute dues (Rs.) Year to

is pending which

amount

relates

Income tax Corporate 17,117,248/- 1998-1999

appellant tax

tribunal

Income tax Corporate 13,514,013/- 1999-2000

appellant tax

tribunal

Deputy Corporate 12,024,891/- 2000-2001

commissioner

of Income tax

appeals

Total 42,656,152/-


37



A B JaniPartner

Membership No. 46488

xii) According to information and explanations given to us,

there are no dues payable to a financial institution or bank

or debenture holders.

xiii) According to the information and explanations given to us,

the Company has not granted any loans or advances on the

basis of security by way of pledge of shares, debentures and

other securities.

xiv) According to the information and explanations given to us,

the Company has not given any guarantee for loans taken

by others from banks or financial institutions.

xv) According to the information and explanations given to us,

there are no term loans obtained by the Company.

xvi) According to information and explanations given to us an on


an overall examination of the balance sheet of the

facie, not been used during the year for long term

investment.

xvii)The Company has not made any preferential allotment of

shares to parties and companies covered in the Register

maintained under Section 301 of the Companies Act, 1956.

xviii)The Company has not issued any debentures during the

year.

xix) The Company has not raised funds by way of public issues

during the year.

xx) According to the information and explanations given to us,

no fraud on or by the Company was noticed or reported

during the year.

Company, funds raised on short term basis have, primaCompany, funds raised on short term basis have, prima

38


As at As at

March 31, 2006 March 31, 2005

Schedule Rupees Rupees


SHAREHOLDERS' FUNDS:

Capital I 207,997,261 203,453,150

Reserves and Surplus II 5,770,647,929 4,624,778,688

TOTAL 5,978,645,190 4,828,231,838

II. APPLICATION OF FUNDS :

FIXED ASSETS: III

Gross Block 3,069,549,614 2,841,185,187

Less : Depreciation 1,501,590,748 1,140,672,013

Net Block 1,567,958,866 1,700,513,174

Capital Work-in-Progress, including Advances 193,315,116 70,489,653

1,761,273,982 1,771,002,827

INVESTMENTS IV 2,947,512,505 1,149,347,396

DEFFERED TAX ASSET (NET) 4,868,662 2,007,380

CURRENT ASSETS, LOANS AND ADVANCES: V

Sundry Debtors 4,127,568,931 2,174,167,977



5,244,137,786 3,629,907,045

Less : CURRENT LIABILITIES AND PROVISIONS:

Liabilities VI 1,957,671,077 1,117,684,188

Provisions VII 2,021,476,668 606,348,622

3,979,147,745 1,724,032,810

Net Current Assets 1,264,990,041 1,905,874,235

TOTAL 5,978,645,190 4,828,231,838








A B JaniPartner

Mumbai

Dated : May 15, 2006

BALANCE SHEET AS AT MARCH 31, 2006

39




PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2006

Year ended Year ended

March 31,2006 March 31,2005

Schedule Rupees Rupees

INCOME VIII 12,284,497,216 9,295,929,886

EXPENDITURE :

Personnel IX 4,675,754,883 3,537,255,987

Operating and Other Expenses X 4,828,499,788 4,071,256,731

Depreciation 373,803,612 315,269,326

TOTAL 9,878,058,283 7,923,782,044

PROFIT BEFORE TAXATION AND NON -RECURRING/ 2,406,438,933 1,372,147,842

EXCEPTIONAL ITEMS

Provision for Taxation (Refer note 17 of Schedule XI)

- Current tax [includes provision for wealth tax (175,087,277) (142,248,589)

of Rs 186,355 ( previous year Rs. Nil )]

- Deferred tax 2,861,282 (558,938)

- Fringe benefit tax (33,000,000) -

PROFIT AFTER TAXATION AND BEFORE NON - RECURRING / 2,201,212,938 1,229,340,315

EXCEPTIONAL ITEMS

Non - recurring / exceptional items (Refer note 6 of schedule XI) - 518,418,278

(Net of tax Rs Nil)

PROFIT FOR THE YEAR AFTER TAXATION AND 2,201,212,938 710,922,037

NON-RECURRING/ EXCEPTIONAL ITEMS

Balance brought forward from previous year 3,753,582,131 3,382,713,289

Balance available for appropriation 5,954,795,069 4,093,635,326

Interim Dividend - I (30,607,607) (121,658,250)

Interim Dividend - II (31,153,569) (101,537,765)

Interim Dividend - III (62,367,487) -

Interim Dividend - IV (499,193,427) -

Final Dividend (415,994,523) -

Dividend Tax (145,764,155) (28,857,180)

Transfer to General Reserve (230,000,000) (88,000,000)

Balance Carried to Balance Sheet TOTAL 4,539,714,301 3,753,582,131

Earning Per Share (Refer note 19 of Schedule XI)

- Basic 21.17 6.99

- Diluted 17.13 6.23



For Tech Mahindra LimitedFor Deloitte Haskins & SellsChartered Accountants

A B JaniPartner



40


CASH FLOW FOR THE YEAR ENDED MARCH 31, 2006Current Year Previous Year

Particulars Rupees Rupees Rupees

A. Cash Flow from operating activities

Net Profit before taxation and non-recurring /exceptional items 2,406,438,933 1,372,147,842

Adjustments for:

Depreciation 373,803,612 315,269,326

Loss on sale of Fixed Assets, (net) 4,055,980 3,174,459


Decrease in fair value of Current Investment 267,194 155,364

Exchange gain (net) (21,089,447) (49,546,136)

Dividend from current Investments (47,097,620) (16,192,295)

Interest Income (69,992,839) (30,848,248)

Profit on Sale of Investments (11,200,264) (28,315)

228,746,616 222,031,660

Operating profit before working capital changes 2,635,185,549 1,594,179,502

Adjustments for:

Trade and other receivables (2,321,831,478) 497,103,502

Trade and other payables 1,022,474,692 494,791,062

(1,299,356,786) 991,894,564

Cash generated from operations 1,335,828,763 2,586,074,066

Direct Taxes (1,084,434) (26,684,089)

(1,084,434) (26,684,089)

Net cash from operating activities 1,334,744,329 2,559,389,977

B. Cash flow from investing activities

Purchase of Fixed assets (391,983,614) (546,608,653)

Purchase of Investments (2,507,118,434) (1,318,669,769)

Acquisition / Investments in Subsidiaries (1,791,905,837) (120,691,875)

(Refer note 4 of schedule XI)

Sale of Investments 2,511,792,232 656,825,066

Sale of Fixed Assets 5,947,199 1,239,951

Interest received 71,683,094 29,218,788

Dividend on current investments received 47,097,620 16,192,295

Net cash used in / from investing activities (2,054,487,740) (1,282,494,197)

C. Cash flow from financing activities

Proceeds from issue of Shares (including Securities Premium) 134,281,182 15,941,220

Dividend (including Dividend Tax paid) (141,537,708) (412,145,049)

Net cash from financing activities (7,256,526) (396,203,829)

Net (decrease)/increase in cash and cash equivalents (A+B+C) (726,999,937) 880,691,951

Cash and cash equivalents at the beginning of the period 1,223,489,421 342,797,470

Cash and cash equivalents at the end of the period 496,489,484 1,223,489,421

41






A B JaniPartner

Mumbai

Dated : May 15, 2006


Notes:

1. Components of cash and cash equivalents include cash, bank balances in current and deposit accounts as

disclosed under Schedule V(b) of the accounts.

2. Purchase of fixed assets are stated inclusive of movements of capital work in progress between the

commencement and end of the period and are considered as part of investing activity.

March 31, 2006 March 31,2005

Rupees Rupees

3. Cash and cash equivalents include :


Unrealised (gain)/loss on foreign currency

Cash and cash equivalents (19,340,600) 1,748,847

Total Cash and Cash equivalents 496,489,484 1,223,489,421

CASH FLOW FOR THE YEAR ENDED MARCH 31, 2006 (contd.)

42

As at As at

March 31, 2006 March 31, 2005

Rupees Rupees

Schedule I

SHARE CAPITAL :

Authorised :

150,000,000 (previous year 125,000,000 )

Equity Shares of Rs. 2 each 300,000,000 250,000,000

300,000,000 250,000,000


112,440,523 (previous year 101,726,575) Equity

Shares of Rs. 2/-each 224,881,046 203,453,150

Paid-up :

102,508,885 (previous year 101,726,575) Equity

Shares of Rs. 2/- each fully paid-up 205,017,770 203,453,150

9,931,638 (previous year Nil ) Equity

Shares of Rs 2/- each Rs 0.30 paid-up 2,979,491 -

TOTAL 207,997,261 203,453,150

1. Out of the above 57,600,060 [including Nil (previous year 200) held with nominees] Equity Share of Rs. 2/- each fully paid-

up are held by Mahindra & Mahindra Ltd., the holding company.

2. The above includes 51,000,100 and 25,000,000 Equity Shares of Rs. 2/-each issued as fully paid-up bonus shares by

capitalisation of balance of Profit and Loss Account and General Reserve, respectively.

Schedule II

RESERVES AND SURPLUS:

General Reserve :


Add : Transfer from Profit and Loss Account 230,000,000 88,000,000

948,430,284 718,430,284

Securities Premium :


Add : Received during the year 129,737,071 15,216,180

282,503,344 152,766,273

Balance in Profit and Loss Account 4,539,714,301 3,753,582,131

TOTAL 5,770,647,929 4,624,778,688

SCHEDULES FORMING PART OF THE BALANCE SHEET

As at As at

March 31, 2006 March 31, 2005


43

Annual Report 2005 - 2006 TECH MAHINDRA LIMITED

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44

As at As at

March 31, 2006 March 31, 2005


Schedule IV


Long Term (unquoted)

Trade:


375,000 Ordinary Shares of US$ 1 each fully paid-up of 11,794,500 - 11,794,500

Tech Mahindra ( Americas) Inc.

( Formerly known as MBT International Incorporated U.S.A.)

Less : Provision for Dimunition 11,794,500 11,794,500

(Refer Note 6 of Schedule XI) - -

3 Shares of Euro 25,000, 50,000 and 500,000 each, 388,827,375 - 388,827,375

fully paid-up of Tech Mahindra GmbH

(Formerly known as MBT GmbH)

(Refer Note 1 below)

Less : Provision for Dimunition 353,632,342 353,632,342

(Refer Note 6 of Schedule XI) 35,195,033 35,195,033

5,000 Equity Shares of Singapore $ 10 each fully paid-up - 1,371,976 1,371,976

of Tech Mahindra (Singapore) Pte Ltd.

(Formerly known as MBT Software Technologies Pte Ltd, Singapore)

9,203,500 Equity Shares (previous year Nil )of Tech Mahindra

(R &D Services) Limited - 1,787,889,148 -

(Formerly known as Axes Technologies (India) Private Limited)

of Rs. 5 each fully paid-up

(Refer Note 4 of schedule XI)

300,000 Equity Shares (previous year Nil) of

Tech Mahindra (Thailand) Limited - 3,516,749 -

( Formerly known as MBT Thailand Co Limited ) of THB.100 each fully

paid-up

49,994 Equity shares (previous year Nil ) of Tech Mahindra Foundation - 499,940 -

of Rs. 10 each fully paid up

1,828,472,846 36,567,009

Current Investments (at lower of cost and fair value)

Non Trade :

Nil (previous year 101,396.50) units of Rs Nil (previous year - - 101,508,060

Rs.1,001.10) each of Franklin Templeton Mutual Fund- Institutional

Income Plan

92,347.61 (previous year Nil ) units of Rs 1,000.58 each 92,401,094 -

of Franklin Templeton Mutual Fund Weekly Dividend

Institutional Plan[Cost Rs. 92,443,267 (previous year Rs. Nil)]

Nil (previous year 4,144,029.86) units of Rs. Nil (previous year - - 42,326,321

Rs. 10.21) each of DSP Merrill Lynch - Short Term Fund - Dividend

Nil (previous year 8,116,274.55) units of Rs. Nil (previous year - - 81,429,837

Rs 10.03 ) each of DSP Merrill Lynch - Floating Rate - Weekly Dividend

of Principal Mutual Fund - Institutional Plan

SCHEDULES FORMING PART OF THE BALANCE SHEET (contd.)

45


Notes:1. Includes Rs. 359,806,875 ( previous year Rs. 359,806,875) invested towards capital reserve of the company in accordance with the German Commercial Code2. Refer Note 20 of Schedule XI for additional information

Nil (previous year 1,066,927.90) units

of Rs.Nil (previous year Rs.10.04) each - 10,712,914

of Principal Mutual Fund - Institutional Plan

Dividend Reinvestment Monthly

Nil (previous year 4,032,914.19) units of Rs.Nil - 40,415,043

(previous year Rs. 10.02 ) each of Principal

Mutual Fund - Floating Rate Fund SMP

6,265,066.85 (previous year Nil) units of Rs. 10.00 each 62,672,596 -

of Principal Mutual Fund - Liquid Institutional Plan weekly dividend

[Cost Rs. 62,701,509 (previous year Rs. Nil)]

Nil (previous year 3,310,999.22 ) units of Rs. Nil - 50,586,064

(previous year Rs.15.28) each of Reliance Mutual

Fund-Treasury Plan Institutional Option

Nil (previous year 2,000,000) units of

Rs. Nil ( Previous year of Rs. 10.00 ) each of - 20,000,000

Reliance Mutual Fund-Fixed Term Quarterly Plan Dividend Option

5,000,000 units of Rs. 10.00 each of Reliance Mutual Fund-FMP 50,000,000 50,000,000

5,000,000 (previous year Nil ) units of Rs. 9.99 each of 49,927,500 -

Reliance Fixed Tenor Fund Growth Plan


Nil (previous year 2,000,000) units of

Rs.Nil ( previous year of Rs. 10 ) each - 20,000,000

of Reliance Mutual Fund-Growth Plan

Nil (previous year 9,507,961.29) units of Rs. Nil - 101,090,809

(previous year Rs. 10.63 ) each of HDFC Cash Management

Fund Weekly Dividend

5,000,000 (previous year 4,409,628.75) units of Rs. 10.00 each 50,000,000 50,676,570

(previous year Rs. 11.49 ) each of Chola Fund Liquid Institutional

Plus-Dividend Option

Nil (previous year 9,811,360.90 ) units of Rs. Nil (previous year - 101,092,372

Rs.10.30) each of Standard Chartered Mutual Fund

Weekly Dividend Plan

5,000,000 (previous year Nil ) units of Rs. 9.98 49,900,000 -

each of Grindlays - FMP


90,695.00 (previous year Nil ) units of Rs. 1,135.75 103,007,090 -

each of TATA Mutual Fund Liquid High Investment

fund weekly dividend

5,000,000 (previous year Nil ) units of Rs. 10.00 50,000,000 -

each of Sundaram Mutual Fund - FMP

5,024,693.83 (previous year Nil ) units of Rs. 10.00 50,247,000 -

each of ABN AMRO Mutual Fund - FMP

1,119,039,659 1,112,780,387

TOTAL 2,947,512,505 1,149,347,396

As at As at

March 31, 2006 March 31, 2005



46

As at As at

March 31, 2006 March 31, 2005


Nil (previous year 4,315,175.02) units of Rs. Nil (previous year 51,109,288

Rs. 11.84) each of Prudential ICICI Mutual Fund-Liquid Income Plan -

Nil (previous year 1,119,449.83) units of Rs. Nil (previous year - 12,150,841

Rs. 10.85) each of Prudential ICICI Mutual Fund

Institutional Short Term Plan

4,748,969.47 units of Rs. 10.53 each of Prudential ICICI 50,000,000 50,000,000

Mutual Fund FMP Yearly Growth Plan

11,665,474.85 (previous year Nil ) units of Rs. 10.00 116,668,816 -

each of Prudential ICICI Mutual Fund

Liquid Plan Super Institutional

Nil (previous year 9,313,161.61) units of Rs Nil (previous - 100,705,538

year Rs. 10.81) each of Birla Mutual Fund - Institutional Plan

5,000,000.00 (previous year Nil) units of Rs 10.00 50,000,000 -

each of Birla Mutual Fund - Fixed term growth plan

3,071,767.96(previous year Nil) units of Rs 10.02 30,786,794 -

each of Birla Mutual Fund - Institutional Plan


5,000,000(previous year Nil ) units of Rs.10.00 each 50,000,000 -

of HSBC Mutual Fund- Fixed maturity plan

5,029,509.92 (previous year Nil ) units of Rs. 10.00

each of HSBC Mutual Fund 50,295,099 -

Fixed term series Institutional Growth Plan

Nil (previous year 6,749,441.71) units of Rs. Nil (previous year 70,536,265

Rs.10.45) each of HSBC Mutual Fund - Short Term Institutional Fund -

Nil (previous year 2,696,842.37) units of Rs.Nil (previous year - 27,013,492

Rs.10.02 ) each of J M Mutual Fund- Short Term Institutional Plan

6,952,192.63 (previous year 5,035,302.57)

units of Rs. 10.03 (previous year 69,748,080 50,449,649

Rs.10.02 ) each of J M Mutual Fund-

High Liquidity Super Institutional Plan

Nil (previous year 3,034,216.23) units of Rs. Nil (previous - 30,353,388

year Rs.10.00) each of Kotak Floater Long Term - Weekly Dividend

4,098,246.52 (previous year Nil) units of Rs. 10.03 each 41,096,908 -

of Kotak Liquid Institutional Premiun weekly dividend

5,000,000 (previous year Nil) units of Rs. 10.00 (previous 50,000,000 -

year Rs. Nil ) each of Kotak Mutual Fund -FMP Growth

5,214,307.74 (previous year 5,048,809.48) units

of Rs. 10.03 (previous year Rs.10.03 ) each of Kotak Mutual Fund - 52,288,682 50,623,936

Liquid Institiutional Weekly Dividend


47


As at As at

March 31, 2006 March 31, 2005


Schedule V


Current Assets :

(a) Sundry Debtors * :

(Unsecured)

Debts outstanding for a period exceeding six months:

: considered good ** 145,101,029 189,209,996

: considered doubtful 26,445,830 168,090,993

171,546,859 357,300,989

Other debts, considered good *** 3,982,467,902 1,984,957,981

considered doubtful 153,393,431 -

4,307,408,192 2,342,258,970

Less: Provision 179,839,261 168,090,993

(Refer note 6 of schedule XI)

4,127,568,931 2,174,167,977

* Debtors include unbilled revenue of Rs. 437,865,019

(previous year Rs.346,914,306 )

** Net of advances of Rs. 63,188,086 (previous year Rs. Nil)

pending adjustments with invoices

*** Net of advances of Rs.29,217,991(previous year Rs.1,775,117,870)

Pending adjustments with invoices.

(b) Cash and Bank Balances :

Balance with Scheduled banks :

(i) In Current accounts 231,486,518 766,477,954

(ii) In Fixed Deposit accounts 275,971,678 451,024,771

Balance with other banks :With Commonwealth Bank of Australia @

In Current accounts 8,371,888 4,237,849

515,830,084 1,221,740,574

@ Maximum balance outstanding during the period/year :

Current Account - Rs 8,371,888 (previous year Rs.28,822,855)

(c) Loans and Advances :

(Unsecured)

Bills of Exchange ( considered doubtful) 5,000,000 5,000,000

Less: Provision 5,000,000 5,000,000

Loans to Subsidiary 223,050,000 -

Advances recoverable in cash or in kind or for

value to be received........considered good 377,688,771 233,998,494

........considered doubtful 3,758,992 3,758,992

381,447,763 237,757,486

Less : Provision 3,758,992 3,758,992

377,688,771 233,998,494

600,738,771 233,998,494

TOTAL 5,244,137,786 3,629,907,045


48

Schedule VI


Sundry Creditors :

Total outstanding dues to Small Scale Industrial Undertakings - -

Total outstanding dues of Creditors other than Small Scale

Industrial Undertakings * 1,957,671,077 1,117,684,188

* includes -

Rs.349,735,805 (previous year Rs. 48,471,143 )

due to Tech Mahindra (Americas) Inc. USA

a subsidiary company

Rs.53,138,178 (previous year Rs. 54,921,003 )

due to Tech Mahindra GmbH a subsidiary company

Rs. 16,916,357 (previous year Rs. 58,798 ) due

To Tech Mahindra (Singapore) Pte. Ltd.

a subsidiary company

TOTAL 1,957,671,077 1,117,684,188

Schedule VII

PROVISIONS:


Proposed Dividend 915,187,950 -

Provision for Dividend tax 128,355,110 -



TOTAL 2,021,476,668 606,348,622

As at As at

March 31, 2006 March 31, 2005

Rupees Rupees


49


SCHEDULES FORMING PART OF THE PROFIT AND LOSS ACCOUNT


March 31,2006 March 31,2005


Schedule VIII

INCOME :

Income from services (net) 11,943,343,402 9,190,808,613


( previous year Rs.9,283,236) ]

Management fees (Net) 28,094,771 32,565,075

11,971,438,173 9,223,373,688

Interest on :

Deposits with banks 63,443,558 30,258,995

[Tax deducted at source Rs.9,245,040


Others [Tax deducted at source Rs.Nil 6,549,281 589,253

( previous year Rs.53,839)] 69,992,839 30,848,248

Dividend received on current investments (non - trade) 47,097,620 16,192,295

Profit on sale of current investments (net) 11,200,264 28,315

Exchange fluctuations (Net) 148,030,658 13,323,871

Excess provisions for earlier years/

sundry credit balances written back 31,582,315 220,779

Provision for doubtful debts/advances written back 2,755,456 8,502,342

Insurance claim received 179,245 107,312

Miscellaneous income 2,220,646 3,333,036

TOTAL 12,284,497,216 9,295,929,886

Schedule IX

PERSONNEL :

Salaries, wages and bonus (Refer note 14 of Schedule XI) 4,118,066,467 3,134,319,663

Contribution to provident and other funds 280,628,217 253,907,360

Staff welfare 277,060,199 149,028,964

TOTAL 4,675,754,883 3,537,255,987

50

Schedule X

OPERATING AND OTHER EXPENSES :

Power 67,792,661 46,987,908

Rent 116,724,497 138,597,626

Rates and taxes 3,331,853 4,559,252


Travelling expenses 1,502,336,797 2,022,590,973

[Net of recoveries Rs.12,654,700 ( previous year Rs.51,187,284)]

Recruitment expenses 69,858,781 32,125,277

Hire charges [includes car lease rentals Rs.4,102,478 101,157,361 118,485,525


Sub-contracting costs 1,920,473,006 955,595,123

Repairs and maintenance :

Buildings (including leased premises) 14,393,023 14,689,134

Machinery 34,532,640 22,011,760

Others 35,058,006 19,202,163

83,983,669 55,903,057

Insurance 24,034,103 14,419,746


Software packages 124,603,324 80,029,919

Training 90,007,138 71,425,395

Advertising, marketing and selling expenses 5,070,122 46,335,716

Commission on services income 39,821,048 34,378,472

Loss on sale of fixed assets (net) 4,055,980 3,174,459

[Net of write back of leased liability

agregating to Rs 1,560,859 (Previous year Rs Nil)]

Excess of cost over fair value of current investments 267,194 155,364

Provision for doubtful debts 14,503,724 14,180,376

Fixed assets written off - 47,505

Advances / bad debts written off - 13,397,660

Donations 154,792,908 3,681,840


TOTAL 4,828,499,788 4,071,256,731

* includes printing and stationery expenses,hospitality expenses, conveyance, etc.


March 31,2006 March 31,2005


SCHEDULES FORMING PART OF THE PROFIT AND LOSS ACCOUNT (contd.)

51




The accounts have been prepared to comply in all material

aspects with applicable accounting principles in India, the

Accounting Standards issued by the Institute of Chartered

Accountants of India (ICAI) and the relevant provisions of the

Companies Act, 1956.

(b) Use of Estimates:

The preparation of financial statements, in conformity with the

generally accepted accounting principles, requires estimates

and assumptions to be made that affect the reported amounts of

assets and liabilities on the date of financial statements and the

reported amounts of revenues and expenses during the reported

year. Differences between the actual results and estimates are

recognised in the year in which the results are

known/materialised.

(c) Fixed Assets:

Fixed assets are stated at cost less depreciation. Costs comprise

of purchase price and attributable costs, if any.

(d) Assets taken on lease:

Assets taken on finance lease on or after April 1, 2001 are

accounted for as fixed assets in accordance with Accounting

Standard 19 on “Leases”, (AS 19) issued by The Institute of

Chartered Accountants of India. Accordingly, the assets have

been accounted at fair value. Lease payments are apportioned

between finance charge and reduction of outstanding liability.

(e) Depreciation on fixed assets:

The Company computes depreciation for all fixed assets

including for assets taken on lease using the straight-line

method based on estimated useful lives. Depreciation is

charged on a pro-rata basis for assets purchased or sold during

the year. Management's estimate of the useful life of fixed

assets is as follows.

SCHEDULES FORMING PART OF THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT

Significant accounting policies and notes on accounts for the

Year ended March 31, 2006

Buildings 15 years

Computers 3 years



Vehicles 5 years

(f) Impairment of Assets:

At the end of each year, the company determines whether a

provision should be made for impairment loss on fixed assets by

considering the indications that an impairment loss may have

occurred in accordance with Accounting Standard 28 on

''Impairment of Assets'' issued by the Institute of Chartered

Accountants of India. Where the recoverable amount of any

fixed asset is lower than its carrying amount, a provision for

impairment loss on fixed assets is made for the difference.

(g) Investments:

Current investments are carried at lower of cost and fair value.

Long term investments are carried at cost. Provision is made to

recognise a decline other than temporary in the carrying amount

of long term investment.

(h) Revenue recognition:

Revenue from software consists primarily of revenue earned

from services performed on 'time and material' basis. The

related revenue is recognized as and when services are

performed. Income from services performed by the Company

pending receipt of purchase orders from customers, which are

invoiced subsequently on receipt thereof, are recognized as

unbilled revenue.

The Company also performs time bound fixed price

engagements, under which revenue is recognized using the

percentage of completion method of accounting, unless work

completed cannot be reasonably estimated. Provision for

estimated losses, if any on uncompleted contracts are recorded

in the period in which such losses become probable based on the

current contract estimates.

Dividend income is recognized when the Company's right to

receive dividend is established. Interest income is recognized on

time proportion basis.

(i) Foreign currency transactions:

Transactions in foreign currencies are recorded at the exchange

rates prevailing on the date of transaction. Monetary items are

translated at the year-end rates. The exchange difference

between the rate prevailing on the date of transaction and on the

date of settlement as also on translation of monetary items at

the end of the year, is recognised as income or expense, as the

case may be, except where they relate to fixed assets where

they are adjusted to the cost of fixed assets.

Any premium or discount arising at the inception of the forward

exchange contract is recognized as income or expense over the

life of the contract, except in the case where the contract is in

connection with purchase of fixed asset, where the same is

adjusted to the cost of fixed assets. Exchange difference

accounted on a forward exchange contract entered into to hedge

the foreign currency risk of a firm commitment is the difference

between the foreign currency amount of the contract translated

at the exchange rate at the reporting/settlement date and the

said amount translated at the later date of inception of the

contract/last reporting date.

(j) Retirement Benefits:

Provision is made for gratuity and encashment of unavailed

leave on retirement on the basis of actuarial valuations.

Schedule XI

52


(k) Income taxes:

Tax expense comprises of current tax, deferred tax and fringe

benefit tax. Current tax and Deferred tax are accounted for in

accordance with Accounting standard 22 on “Accounting For

Taxes on Income”, (AS 22) issued by the ICAI. Current tax is

measured at the amount expected to be paid to/recovered from

the tax authorities, using the applicable tax rates. Deferred tax

assets and liabilities are recognised for future tax consequences

attributable to timing differences between taxable income and

accounting income that are capable of reversal in one or more

subsequent years and are measured using relevant enacted tax

rates. The carrying amount of deferred tax assets at each

Balance sheet date is reduced to the extent that it is no longer

reasonably certain that sufficient future taxable income will be

available against which the deferred tax asset can be realized.

Fringe benefit tax is recognized in accordance with the relevant

provisions of the Income-tax Act, 1961 and the Guidance Note

on Fringe Benefits Tax issued by the ICAI. Tax on distributed

profits payable in accordance with the provisions of the Income-

tax Act, 1961 is disclosed in accordance with the Guidance Note

on Accounting for Corporate Dividend Tax issued by the ICAI.

(l) Contingent Liabilities:

These, if any, are disclosed in the notes and accounts. Provision

is made in the accounts if it becomes probable that any outflow

of resources embodying economic benefits will be required to

settle the obligation.

2. The estimated amount of contracts remaining to be

executed on capital account, and not provided for as at March

31, 2006 Rs. 421,608,250 (previous year: Rs. 92,431,940).

3. Contingent liabilities:

(i) Income tax demands disputed in appeal by the Company

Rs. 42,656,152 (previous year Rs. 87,462,656) awaiting

decision.

(ii) Bank Guarantees outstanding Rs. 90,739,321 (previous

year: Rs. 47,362,405)

4. During the year, vide Share Purchase Agreement dated 15th

November, 2005, the Company has acquired Tech Mahindra

(R&D services) Limited (Formerly known as Axes Technologies

(India) Private Limited), for a initial consideration of Rs.

1,755,060,471 (including stamp duty). As a result, TMRDL and

its two wholly owned subsidiaries have become subsidiary / step

subsidiaries of the Company with effect from the date of

acquisition i.e. 28th November, 2005.

The terms of purchase also provide for payment of contingent

consideration to all the selling shareholders, payable over three

years and calculated based on achievement of specific targets.

The contingent consideration is payable in cash and cannot

exceed Rs. 640,780,000. The consideration so payable would

be accounted in the books of account in the year of achieving the

milestones under the Agreement. Accordingly Rs. 32,828,677

has been accounted for as at the year end, as additional cost of

acquisition.

5. Confirmation letters have been sent to the debtors and

creditors of the Company and their balances are subject to

reconciliation and consequent adjustments, if any, on receipt of

such confirmations.

6. The Company holds investments (unquoted) in two

subsidiaries, viz., Tech Mahindra (Americas) Inc.(TMI) (

formerly known as MBT International Incorporated, USA) , Tech

Mahindra GmbH (TMGMBH) ( formerly known as MBT GmbH,

Germany) aggregating to Rs. 11,794,500 and Rs.

388,827,375 respectively (Refer Schedule IV), which are held

as strategic long-term investments. Further, the Company has

trade receivables aggregating to Rs. 372,324,042 and Rs.

42,186,455 from TMI and TMGMBH respectively and loan

outstanding aggregating to Rs. 223,050,000 from TMI.

As per the latest available audited accounts of the aforesaid

companies as at March 31, 2006, their respective net worth have

been fully/substantially eroded. These subsidiaries have

incurred losses due to substantial costs incurred over the past

few years in building marketing capabilities but have made

operating profits during the last year. Moreover, the subsidiaries

have growth plans and expect to continue to earn profits in

subsequent years resulting into positive net worth over a period

of time.

Considering the above, out of abundant caution, the company

has made provisions in the previous year, to the extent of

accumulated losses in these subsidiaries as at the previous year

end , aggregating, to Rs. 11,794,500 and Rs. 353,632,342

towards diminution in the value of investments in TMI and

TMGMBH respectively and Rs.152,991,436 towards debts

recoverable from TMI.

SCHEDULES FORMING PART OF THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT (contd.)

53


8. (a) Value of Imports on C.I.F. Basis :


Rupees Rupees

Capital goods [includes Rs. Nil (previous year 99,296,829 94,955,133

Rs. 17,826,100) towards assets purchased

in UK office]

8. (b) Expenditure in Foreign Currency :


Rupees Rupees

1. Audit Fees 850,000 850,000

2. Audit of accounts as per USGAAP 150,000 150,000

3. As advisor or in any other capacity in respect

of taxation matters etc. 200,000 250,000

4. In any other manner for certification etc. 390,000 365,000

5. For expenses 63,178 116,663

6. For Service Tax 162,180 111,185

Total 1,815,358 1,842,848

7.Payment to Auditors :



Rupees Rupees

Professional Fees 64,274,740 64,653,812

Subcontracting cost 1,633,121,616 803,409,635

Traveling Expenses 1,320,928,324 1,532,531,310

Salaries 1,262,970,395 1,223,572,940

Software Packages 39,452,637 40,133,442

Others [including UK Corporation Tax Rs. 71,727,590 382,163,032 582,845,703

(Previous year Rs 86,269,405)

TOTAL 4,702,910,744 4,247,146,842

54


9. Remittance in foreign currency on account of dividends to non-Resident shareholders:

Number of Number of Equity Amount remitted Dividend relating

Shareholders Rupees Rupees to Year ended

2005-2006

Five Interim 1 43,538,335 13,061,500 March 31, 2006

Six Interim 2 53,469,973 13,508,425 March 31, 2006

Nine Interim 3 53,482,603 27,024,426 March 31, 2006

2004-2005

Four Final 43,502,015 60,902,821 March 31, 2004

Four Interim 1 43,502,015 52,202,418 March 31, 2005

Three Interim 2 43,528,325 43,528,325 March 31, 2005

10. Earnings in foreign Exchange :


Rupees Rupees

Income from Services 11,899,953,571 9,162,196,652

Management Fees (Net) 28,094,771 32,565,075

Interest on Deposits with Bank 28,157,772 4,941,839

Interest on Loan to Subsidiary 5,405,921 -

11. Managerial Remuneration paid to Managing Director, Executive Director and non-Executive Directors :

The above remuneration excludes provision for gratuity and leave encashment since these are based on actuarial valuation done on an overall company basis.


Rupees Rupees

Managerial Remuneration 17,102,700 8,188,440

Commission 22,808,000 11,912,300

Total 39,910,700 20,100,740


55




Profit before Tax and Exceptional Items as per Profit and 2,406,438,933 1,372,147,842

Loss Account

Add :

Depreciation charged in the accounts 373,803,612 315,269,326


Loss on sale of assets as per section 349 of the 4,055,980 (3,174,459)

Companies Act, 1956 (Net)

Director's Remuneration 20,100,740 20,100,740

Provision for Doubtful Debts and Advances 14,503,724 14,180,376

412,464,056 346,423,488

2,818,902,989 1,718,571,330

Less :

Loss on sale of assets as per books 4,055,980 (3,174,459)

Depreciation u/s 350 of Companies Act, 1956 373,803,612 315,269,326

Fixed Assets written off as per section 349 of the - 47,505

Companies Act , 1956 (Net)

Provision for doubtful debts/advances written back 2,755,456 8,502,342

380,615,048 320,644,714

TOTAL 2,438,287,941 1,397,926,616

Commission payable to the Managing Director and Executive Director. 7,308,000 4,700,000

Commission payable to non-executive directors 15,500,000 7,212,300

Computation of Net Profit in accordance with Section 309(5) of the Companies Act, 1956, for the year ended March 31,

2006.

12. Assets acquired on Lease on or after April 1, 2001:

The Company has acquired vehicles on lease, the fair value of which aggregates to Rs. 74,345,454. As per AS 19, the

Company has capitalised the said vehicles at their fair values as the leases are in the nature of finance leases as defined in

AS 19. Lease payments are apportioned between finance charge and deduction of outstanding liabilities. The details of

lease rentals payable in future are as follows:

Not later than Later than 1 year not later than 5

1 year years

Minimum Lease rentals payable 19,147,044 19,297,314

(Previous year Rs. 22,372,588 and Rs. 33,467,813

respectively)

Present value of Lease rentals payable 17,368,509 15,466,831

(Previous year Rs. 20,294,438 and 26,209,591

respectively)


56


13. As per Accounting Standard 17 on Segment reporting issued by the Institute of Chartered Accountants of India, the Primary

Segment of the Company is Geographical by location of customers. The Secondary Segments are identified based on the line of

operations of the Company. The Accounting principles consistently used in the preparation of the financial statements are also

applied to record income and expenditure in individual segments. There are no inter-segment transactions during the year.

The Primary Geographical segments of the company consist of regions of Europe, United States of America (USA) and Rest of

World(ROW). The Secondary Segments consist of services provided in the Telecom sector and other sectors.



assets are used interchangeably between segments and the Company is of the view that it is not practical to reasonably allocate


57


A. PRIMARY SEGMENTS

FOR THE YEAR ENDED MARCH 31, 2006 GEOGRAPHICAL SEGMENTS BASED ON LOCATION OF CUSTOMERS


REVENUES 9,530,234,565 1,786,995,779 654,207,829 11,971,438,173

DIRECT EXPENSES 5,221,993,170 1,439,707,700 576,254,405 7,237,955,275





Total 2,640,103,008



NET PROFIT BEFORE TAX & NON-

RECURRING/ EXCEPTIONAL ITEMS 2,406,438,933

INCOME TAXES

- Current (175,087,277)

- Deferred 2,861,282

- Fringe Benefit (33,000,000)

NET PROFIT AFTER TAX & BEFORE NON-


NON-RECURRING/ EXCEPTIONAL ITEMS -

NET PROFIT AFTER TAX AND NON-


(In Rupees)(In Rupees)

B. SECONDARY SEGMENTS:Revenues from secondary segments are as under -


Telecom 11,813,019,106

Others 158,419,067

Total 11,971,438,173

Segregation of assets into secondary segments has not been done as the assets are used interchangeably between segments. Consequently the carrying amounts of assets by location of assets is not given.

(in Rupees)

A. PRIMARY SEGMENTS

FOR THE YEAR ENDED MARCH 31, 2005 GEOGRAPHICAL SEGMENTS BASED ON LOCATION OF CUSTOMERS


REVENUES 8,328,655,793 549,892,570 344,825,325 9,223,373,688

DIRECT EXPENSES 5,120,083,883 404,281,995 243,499,407 5,767,865,285





Total 2,155,916,759



NET PROFIT BEFORE TAX & NON-


INCOME TAXES

- Current (142,248,589)

- Deferred (558,938)

NET PROFIT AFTER TAX & BEFORE NON

-RECURRING/EXCEPTIONAL ITEMS 1,229,340,315

NON-RECURRING/ EXCEPTIONAL ITEMS 518,418,278

NET PROFIT AFTER TAX AND NON-

RECURRING/EXCEPTIONAL ITEMS 710,922,037


assets are used interchangeably between segments and the Company is of the view that it is not practical to reasonably allocate


B. SECONDARY SEGMENTS:Revenues from secondary segments are as under -


Telecom 9,223,373,688

Others -

Total 9,223,373,688


Consequently the carrying amounts of assets by location of assets is not given.


58


March 31, 2006 March 31, 2005

Options outstanding at the beginning of the year 2,229,740 1,818,080

Options granted during the year 345,000 832,500

Options lapsed during the year 313,340 58,320

Options cancelled during the year 259,090 -

Options exercised during the year 782,310 362,520

Options outstanding at the end of the year 1,220,000 2,229,740

14. Salaries, Wages, Bonus includes provision for Gratuity Rs. 66,839,000 (Previous year Rs. 27,510,000), Encashment of unavailed leave Rs.97,743,143 (Previous year Rs. 33,790,013).

15. A) The Company has instituted “ Employee Stock Option Plan 2000” (ESOP) for its employees and directors. For this purpose i t had created a trust viz. MBT ESOP trust. In terms of the said Plan, the trust has granted options to the employees and

directors in form of warrant which vest at the rate of 33.33% on each successive anniversary of the grant date. The options c a n be exercised over a period of 5 years from the date of grant. Each warrant carries with it the right to purchase one equity share of the Company at the exercise price determined by the trust on the basis of fair value of the equity shares at t h e

time of grant.


Out of the options outstanding at the end of the year, 504,300 (previous year 1,357,380) options have vested, which have not

been exercised.

B) The Company has instituted “ Employee Stock Option Plan 2004” (ESOP 2004) for its employees. In terms of the said Plan, the

Compensation Committee has granted options to employees of the Company. The options are divided into Upfront options and

Performance options. The Upfront Options are divided into three sets which will entitle holders to subscribe to option shares at the

end of First year, Second year and Third year. The vesting of the Performance Options will be decided by the Compensation

Committee based on the performance of employees.

Options granted and outstanding at the end of the year are 10,219,860 (previous year 10,219,860).

2,271,078 (previous year Nil) options have vested as at the end of the year.

C) During the year the Company has instituted “ Employee Stock Option Plan 2006 “ (ESOP 2006) for the employees and

directors of TML and its subsidiary companies. In terms of the said plan, the compensation committee has granted options to the

employees of the Company. The vesting of the options is 10% , 15%, 20%, 25%,and 30 % of total options granted after 12, 24,

36, 48 and 60 months, respectively from the date of grant. The maximum exercise period is 7 years from the date of grant.

March 31, 2006

Options outstanding at the beginning of the year -

Options granted during the year 4,633,680

Options lapsed during the year -

Options cancelled during the year 21,300

Options exercised during the year -

Options outstanding at the end of the year 4,612,380

Weighted average share price of the above options on the date of the exercise Rs 83

Out of the options outstanding at the end of the year, none of the options have vested.

D) The Company uses the intrinsic value-based method of accounting for stock options granted after April 1, 2005. The Company has done the accounting of ESOPs based on Guidance Note on Accounting for Employee Share-based Payments, issued by the

Institute of Chartered Accountants of India. Had the compensation cost for the Company's stock based compensation plan been

determined in the manner consistent with the fair value approach as described in the Guidance note, the Company's net income

would be lower by Rs 36,942 and earnings per share as reported would be lower as indicated below:



59


16. As required under Accounting Standard 18 (AS 18), following are details of transactions during the year with the related parties of the Company as defined in AS 18:

(a) List of Related Parties and Relationships :

Name of Related Party Relation

Mahindra & Mahindra Limited Holding Company

British Telecommunications, plc. Promoter holding more than 20% stake

Mahindra BT Investment Company ( Mauritius) Limited Promoter Group company

Tech Mahindra ( Americas )Inc, USA (Formerly known as 100% subsidiary company

MBT International Inc., USA)

Tech Mahindra GmbH (Formerly known as 100% subsidiary company

MBT GmbH, Germany)

Tech Mahindra (Singapore) Pte Ltd. (Formerly known as 100% subsidiary company

MBT Software Technologies Pte. Ltd., Singapore)

Tech Mahindra (R & D Services) Limited (Formerly known as 99.97% Subsidiary company

Axes Technologies (India) Private Limited)

Tech Mahindra (Thailand) Limited 99.99% Subsidiary company

Tech Mahindra Foundation 99.98% Subsidiary company

Mahindra Engineering and Chemical Products Limited Fellow Subsidiary Company

Mahindra Engineering Design and Development Company Limited. Fellow Subsidiary Company

Bristlecone India Ltd. Fellow Subsidiary Company

Mahindra & Mahindra Contech Limited Fellow Subsidiary Company

Mr. Robert John Helleur* Key Management Personne

Executive Director and Chief Executive Officer

Mr. Vineet Nayyar* Key Management Personnel

Vice Chairman and Managing Director

* Part of the previous year


Particulars

Net profit as reported 2,201,212,938

Less: Total stock-based employee compensation expense

determined under fair value base method. 36,942

Adjusted net profit 2,201,175,996

Basic earnings per share

- As reported 21.17

- Adjusted 21.17

Diluted earnings per share

- As reported 17.13

- Adjusted 17.13

The fair value of each warrant is estimated on the date of grant based

on the following assumptions:

Dividend yield (%) 6.89

Expected life 5 years

Risk free interest rate (%) 7.12

Volatility -

60


(b)Related Party Transactions :

(Figures in brackets “[ ]”are for the previous year)

Transactions Promoter Subsidiary Fellow subsidiary Key ManagementCompanies Companies Companies Personnel

Rupees Rupees Rupees Rupees

Reimbursement of (83,406,400) (162,589,990) 25,499,644 -

Expenses [(43,642,006)] [192,245,525] [119,746] [-]

(Net)-Paid/(Receipt)

Income from Services & 8,545,278,618 854,483,143 3,735,227 -

Management Fees [7,933,535,493] [612,965,861] [1,525,000] [-]

Interest on Loan - 5,405,921 -

[-] [-] [-] [-]

Commission on Sales - - -

[-] [34,378,472] [-] [-]

Sub-contracting cost - 1,459,977,190 - -

[-] [212,939,120] [5,841,954] [-]

Dividend Paid 122,604,006 [-] - -

[363,789,702] [-] - [152,652]

Investment - 1,791,905,837 - -

[-] [120,691,875] [-] [-]

Donation -- 150,000,000 - -

[-] [-] [-] [-]

Provision for diminution - - - -

in value of investment [-] [365,426,842] [-] [-]

Loan Given/ (Repaid) - 223,050,000 - -

[-] [-] [-] [-]

Salary and Perquisites - - - 17,102,700 [-] [-] [-] [8,188,440]

Provision for doubtful debtors - - - - [-] [152,991,436] [-] [-]

Debit / (Credit) balances (Net) 3,031,737,577 260,871,048 (5,278,085) -

outstanding as on [1,707,318,367] [277,848,490] [(908,470)] [-]

March 31, 2006


61


Out of the above items transactions with Promoter companies, Subsidiary Companies and Key Management Personnel in the excess of 10% of the total related party transactions are as under:


March 31,2006 March 31,2005

Reimbursement of Expenses (net) - Paid/(Receipt)

Promoter Companies

- British Telecommunications plc. (87,292,381) (51,069,289)

Subsidiary Companies

- Tech Mahindra (Americas) Inc.

(Formerly known as MBT International Inc.) 163,350,674 188,948,983

76,058,293 137,879,694

Income from Services

Promoter Companies

- British Telecommunications plc. 8,529,065,460 7,949,298,612

Subcontracting Cost



(Formerly known as MBT International Inc.) 1,219,751,858 124,472,831

- Tech Mahindra GmbH (Formerly known as MBT GmbH) 174,332,177 88,466,289

1,394,084,035 212,939,120

Commission on Sales


- Tech Mahindra GmbH (Formerly known as MBT GmbH) - 34,412,683

Dividend Paid

Promoter Companies

- Mahindra & Mahindra Ltd. 69,120,072 207,360,216

- British Telecommunications plc. 52,143,163 156,429,486

121,263,235 363,789,702

Investment



- Tech Mahindra (R & D Services) Limited

(Formerly known as Axes Technologies (India) Pvt Ltd) 1,787,889,148

Loan Given / (Repaid)



(Formerly known as MBT International Inc.) 223,050,000 -

Interest on Loan



(Formerly known as MBT International Inc.) 5,405,921 -

Donation


- Tech Mahindra Foundation 150,000,000 -

Provision for Diminution in value of Investment



(Formerly known as MBT International Inc.) - 11,794,500


- 365,426,842

Salary and Perquisites

Key Management Personnel

- Mr. Robert John Helleur* - 4,846,288

- Mr. Vineet Nayyar* 17,102,700 3,342,152

17,102,700 8,188,440

Provision for Diminution in value of Debtors



(Formerly known as MBT International Inc.) - 152,991,436


(Amount in Rupees)

62


! Automartindia Limited

! Bristlecone Ltd. Cayman

! Bristlecone Inc.

! Mahindra Gesco Developers Ltd

! Mahindra Acres and Consulting Engineers Ltd

! Mahindra Ashtech Ltd

! Mahindra Automotive Steels Pvt. Ltd

! Bristlecone India Ltd.

! Bristlecone GmbH

! Bristlecone Singapore Pte. Ltd.

! Mahindra (China) Tractor Company Ltd.

! Mahindra Engg & Chem Products Ltd.

! Mahindra Engineering Design & Development

Company Ltd.

! Mahindra Europe s.r.l.

! Mahindra Gujarat Tractor Ltd.

! Mahindra Holdings & Finance Ltd.

! Mahindra Holidays & Resorts India Ltd.

! Mahindra Holidays & Resorts (USA) Inc.

! Mahindra Insurance Brokers Ltd.

! Mahindra Infrastructure Developers Ltd.

! Mahindra Intertrade Ltd.

! Bristlecone UK Ltd.

! Mahindra International Ltd.

! Mahindra World City Developers Ltd.

! Mahindra Logisoft Business Solutions Ltd.

! Mahindra Middleeast Electrical Steel Service Centre

(FZE)

! Mahindra & Mahindra Financial Services Ltd.

! Mahindra & Mahindra South Africa (Pty) Ltd.

! Mahindra Overseas Investment Company (Mauritius)

Ltd.

! Mahindra Realty Ltd.

! Mahindra Renault Pvt. Ltd.

! Mahindra Steel Service Centre Ltd.

! Mahindra Shubhlabh Services Ltd.

! Mahindra SAR Transmission Pvt Ltd.

! Mahindra USA Inc.

! Mahindra Ugine Steel Company Ltd.

! Mahindra World City (Jaipur) Ltd.

! NBS International Ltd.

! Tech Mahindra (R & D Services) Inc

! Tech Mahindra (R & D Services) Pte Ltd.

! Stokes Group Limited

! Jensand Limited

! Stockes Forgings Dudley Limited

! Stockes Forgings Limited

! Plexion Technologies (India) Private Limited

! Plexion Technologies (UK) Limited

! Plexion Technologies GmbH

! Plexion Technologies Incorporated

! Tech Mahindra Foundation

! Mahindra Inframan Water Utilities Pvt. Ltd.

! Mahindra Sona Ltd.

! Mahindra Water Utilities Ltd.

! PSL Erickson Ltd.

! Owens Corning (India) Ltd.

! Siroplast Ltd.

! Mahindra Construction Company Ltd.

! Kota Farm Services Ltd.

! Mriyalguda Farm Solution Ltd.

! Rathna Bhoomi Enterprises Pvt. Ltd.

! Officemartindia.com Ltd.

! Mega One Stop Farm Services Ltd.

There have been no transactions with the aforesaid

companies during the year.

17. The tax effect of significant timing differences that has

resulted in deferred tax assets and liabilities are given

below:

Deferred Rupees Rupees

Tax March 31, 2006 March 31, 2005

a) Deferred (1,435,453) (1,226,029)

tax liability:

Depreciation

b) Deferred tax

asset :

Gratuity, Leave 5,771,675 2,899,302

Encashment etc

Doubtful Debts 532,440 334,107

Total Deferred 4,868,662 2,007,380

Tax Asset (Net)

18. Exchange gain/(loss)(net) accounted during the year:

a) The Company enters into foreign exchange forward

contracts to offset the foreign currency risk arising

from the amounts denominated in currencies other

than the Indian rupee. The counter party to the

Company's foreign currency forward contracts is

generally a bank. These contracts are entered into to

hedge the foreign currency risks of firm

commitments.

Other related parties of the Company are as under :

SCHEDULES FORMING PART OF THE BALANCE SHEET AND

PROFIT AND LOSS ACCOUNT (contd.)

63


Currency Amount outstanding at Amount outstanding at Exposure to Buy/ Sell

year end in Foreign currency year end in Rs.

US Dollar 100,489,700 4,482,845,517 Sell

UK Pound 15,000,000 1,162,500,000 Sell

b) The following are the outstanding Forward Exchange Contracts entered into by the company as on 31st March, 2006:

c) The year end foreign currency exposures that have not been specifically hedged by a derivative instrument or otherwise are

given below:

Amounts receivable in foreign currency on account of the following:

In Rupees In Foreign Currency

Debtors Rs. 2,814,528,306 Aud 683,965

Eur 1,562,766

Gbp 34,825,858

Nzd 198,272

Sgd 604,510

Loans and advances Rs. 113,073,519 Gbp 1,432,401

Thb 186,500

Dhr 75,804

Eur 4,190

Aud 20,889

Cash/Bank balances (Net) Rs. 31,372,790 Aud 772,810

Nzd 236,419

Twd 136,700

Amounts payable in foreign currency on account of the following:

In Rupees In Foreign Currency

Creditors (Net) Rs. 468,476,302 Eur 1,063,457

Gbp 420,755

Sgd 617,040

Usd 8,113,114

Other current liabilities (Net) Rs. 117,312,888 Gbp 1,513,715

d) The amount of exchange difference in respect of forward exchange contracts to be recognized in the profit and loss account

for subsequent accounting year aggregates to Rs. 51,402,677 (Gain) (previous year 2,112,765 )

e) Exchange gain/(loss)(net) accounted during the year:


Income from services (68,509,521) (2,799,680)

Others 148,030,658 13,323,871

The disclosures made in paragraphs (b) and (c) have been made consequent to an announcement by the Institute of Chartered Accountants of India in December, 2005, which is applicable to the financial periods ending on or after 31st March, 2006. Therefore, figures for the previous year have not been disclosed.


64


19. Earning Per Share is calculated as follows:

2006 2005

Particulars Rupees Rupees

a. Net Profit after tax but before Exceptional Item ( in Rupees ) 2,201,212,938 1,229,340,315

Less: Non recurring / Exceptional Items - 518,418,278

Net profit attributable to shareholders 2,201,212,938 710,922,037

b. Weighted average number of Equity Shares

Basic 103,998,631 101,726,575

Add: ESOPs outstanding at the end of the year 16,052,240 12,449,600

Partly Paid-up shares not entitled for dividend 8,441,892

Diluted 128,492,763 114,176,175

c. Nominal value of equity share Rs. 2 Rs. 2

20. Details of Investments Purchased and Sold during the year

March 31, 2006 March 31, 2006


TEMPLETON MUTUAL FUND

Short Term Income Plan Monthly 87,993.54 90,000,000.00

DSP MERRILL LYNCH MUTUAL FUND

Short Term Fund Dividend 4,791,291.35 50,000,000.00

Short Term Fund Monthly Dividend 9,145,199.02 94,430,581.53

PRUDENTIAL ICICI MUTUAL FUND

Short Term Dividend Plan 4,553,360.84 50,000,000.00

Short Term Cumulative Plan 3,917,942.61 50,000,000.00

Liquid Institutional Plan Plus 8,428,718.33 100,000,000.00

BIRLA SUNLIFE MUTUAL FUND

Institutional Premium Weekly Dividend 10,067,379.91 100,941,591.45

Birla Bond Plus Institutional (Fortnightly Dividend) 2,864,891.71 30,000,000.00

HSBC MUTUAL FUND

HSBC Income Fund Short Term Institutional Dividend 4,652,764.21 50,000,000.00

DEUTSCHE MUTUAL FUND

Institutional Plan Weekly Dividend Plan 4,981,419.31 50,000,000.00

JM MUTUAL FUND

Short Term Fund-Institutional Plan-Dividend 3,904,076.83 40,000,000.00

High Liquidity Fund- Super Institututional Plan-Weekly Dividend 10,126,163.18 101,567,780.87

Short Term Fund-Institutional Plan-Growth 4,423,760.91 50,000,000.00

KOTAK MUTUAL FUND

Liquid Institutional Premium - Weekly Dividend 4,982,163.85 50,000,000.00

Kotak Bond Short Term Growth 4,153,479.37 50,000,000.00

Kotak Bond Short Term Monthly Dividend 3,975,036.77 40,000,000.00

PRINCIPAL MUTUAL FUNDS

Institutional Plan - Dividend reinvestment -monthly 4,963,173.25 50,000,000.00


65


21. Previous year's figures have been regrouped wherever necessary, to conform to the current year's classification .

Signatures to Schedules I to XIAs per our attached report of even date For Tech Mahindra Limited

Mr. Anand G.Mahindra - Chairman Mr. Vineet Nayyar - Vice Chairman & Managing Director Mr. Bharat Doshi - Director Mr. Al-Noor Ramji - DirectorMr. Clive Goodwin - Director Dr. Raj Reddy - Director Mr. Anupam Puri - Director Mr. Arun Seth - Director Hon.Akash Paul-Director Mr. Ulhas N. Yargop - Director



A B JaniPartner


March 31, 2006 March 31, 2006


RELIANCE MUTUAL FUND

Reliance Short Term - Growth Plan 4,289,231.46 50,000,000.00

Reliance Treasury Plan Retail Option Weekly Dividend 4,968,128.58 51,385,850.70

HDFC MUTUAL FUND

HDFC Cash Management Fund Weekly Dividend 4,701,899.57 50,000,000.00

CHOLA MUTUAL FUND

Chola Liquid Institutional Plus Weekly Dividend 4,274,271.45 50,000,000.00

ING VYSYA MUTUAL FUND

ING Vysya Liquid Fund Institutional -Weekly Dividend 4,984,100.72 50,000,000.00

TATA MUTUAL FUND

Tata Short term Bond Fund - Dividend 9,184,048.92 10,000,000.00


66


67

BALANCE SHEET ABSTRACT AND THE COMPANY'S GENERAL BUSINESS PROFILE :

I. Registration DetailsRegistration Number 4 1 3 7 0 / 8 6 State Code 1 1

Balance Sheet date 3 1 0 3 2 0 0 6

YearMonth Date

II. Capital raised during the year (Amount in Rs. Thousands)

Public Issue Rights Issue

N I L N I L

Bonus Issue Private Placements

N I L 4 5 4 4

III. Position of Mobilisation and deployment of funds (Amounts in Rs. Thousands)

Total Liabilities (including shareholders' funds) Total Assets

9 9 5 7 7 9 3 9 9 5 7 7 9 3

Paid-up Capital Reserves and Surplus

02 0 7 9 9 7 5 7 7 6 4 8

Secured Loans Unsecured Loans

N I L N I L

Net Fixed Assets Investments

1 7 6 2 7 4 2 9 4 7 5 1 21

Net Current Assets Deferred Tax Asset

1 2 6 4 9 9 0 4 8 6 9

Accumulated Losses

N I L

IV. Performance of Company (Amount in Rs. Thousand)

Turnover (Sales and Other Income) Total Expenditure

41 2 2 8 4 9 7 9 8 7 8 0 5 8

Profit/(Loss) Before Tax Profit/(Loss) After Tax

2 4 0 6 4 3 9 2 2 0 1 2 1 3

Earning per Share in Rs.

(Refer Note 18 above) Dividend Rate %

2 . 1 7 5 0 01

V. Generic Names of Three Principal Products/Service of Company (as per monetary terms)

Item Code ( ITC Code) 8 5 2 4 9 0

Product Description Computer Software Services





68

Particulars Names of the Subsidairy Companies

Tech Mahindra Tech Mahindra Tech Mahindra Tech Mahindra Tech Mahindra Tech Mahindra Tech Mahindra Tech Mahindra

(Americas) GmbH (Singapore) ( Thailand) Foundation (R&D Services) (R&D Services) (R&D Services)

Inc. Pte. Ltd. Ltd. Ltd. Inc. Pte. Ltd.

The Financial Year of the

Subsidairy ended on March 31, March 31, March 31, March 31, March 31, March 31, March 31, March 31,

2006 2006 2006 2006 2006 2006 2006 2006

US $ Euro S$ THB INR INR US $ S$

Number of shares of the subsidairy

Company held by Tech Mahindra

Limited at the above date

Equity 375,000 3 5,000 300,000 49,994 9,203,500 500,000 400,000

Extent of holding 100% 100% 100% 100% 100% 99.99% 99.99% 99.99%

The Net Agrgregate of profits/losess

of the Subsidairy Company for its

financial year so far as they are

concern the memebers of

Tech Mahindra Limited

a) Dealth with in the accounts of

Tech Mahindra for the Year ended

March 31,2006

b) Not dealth with in the accounts

of Tech Mahindra for the Year ended

March 31,2006 792,250 313,977 (159,580) (3,397,196) (34,942) (70,784,875) 225,695 (6,612)

The Net Agrgregate of profits/losess

of the Subsidairy Company for its

previous financial year so far as

they are concern the memebers

of Tech Mahindra Limited

a) Dealth with in the accounts of

Tech Mahindra for the Year ended

March 31,2005

b) Not dealth with in the accounts

of Tech Mahindra for the

Year ended March 31,2005 (1,815,201) (2,182,296) 12,342 - - - - -

Particulars Names of the Subsidairy Companies

Tech Mahindra Tech Mahindra Tech Mahindra Tech Mahindra Tech Mahindra Tech Mahindra Tech Mahindra Tech Mahindra

(Americas) GmbH (Singapore) ( Thailand) Foundation (R&D Services) (R&D Services) (R&D Services)

Inc. Pte. Ltd. Ltd. Ltd. Inc. Pte. Ltd.




STATEMENT PURSUANT TO SECTION 212 OF THE COMPANIES ACT, 1956

RELATING TO SUBSIDIARY COMPANIES


69

FINANCIAL STATEMENTS OF

SUBSIDIARIES OF

FOR THE YEAR ENDED MARCH 31, 2006


Tech Mahindra (Americas) Inc.(Formerly MBT International Inc.)

BOARD OF DIRECTORS1. Mr. Anand G. Mahindra - Chairman2. Mr. Vineet Nayyar - President3. Mr. Al-Noor Ramji4. Mr. Clive Goodwin5. Mr. Ulhas N. Yargop

REGISTERED OFFICE22, Dogwood CircleMatawan, New Jersey 07747USA

BANKERSPNC BankState Bank of IndiaHSBC Bank

CORPORATE OFFICE384 Inverness Parkway,Suite 205, Englewood,CO 80112USA

AUDITORSCapin Crouse L.L. P. Accountants & Consultants

70

TECH MAHINDRA (AMERICAS) INC.

CONTENTS PAGE


Independent Auditors’ Report 73

Independent Auditors’ Report on Supplemental Schedule 74

Balance Sheet 75

Statement of Income and Retained Earning 76

Statement of Cash Flow 77

Notes to Financial Statements 78

Supplemental Schedules of Income & Expenses 82

71



Your Directors present their Report together with the audited accounts of your Company for the year ended 31st March 2006.

FINANCIAL RESULTS

REVIEW OF OPERATIONS

During the fiscal year, the Company achieved sales of US $ 27,537,110 an increase of 89% over the sales for the previous year. The

Company continues to invest in strengthening its marketing infrastructure in the US which is identified as a future growth area. The

increase in business and the focus on right sizing the US operations while preparing for the next level of growth has helped the

Company to earn profits compared to losses in the last few years.

CHANGE OF NAME

During the year, the Company's name was changed from MBT international Inc. to Tech Mahindra (Americas) Inc. This was done in line

with the change of name of the parent company, Tech Mahindra Limited.

OUTLOOK FOR THE CURRENT YEAR

The Company believes that the investments made over the last few years in cultivating long term relationships with major telecom

companies will result in further increase in the business and improvement in profits.

ACKNOWLEDGEMENTS

Your Directors gratefully acknowledge the contributions made by the employees towards the success of the Company. Your Directors

are also thankful for the co-operation and assistance received from its customers, suppliers, bankers, State and Federal Government

Authorities and the shareholder.

Vineet Nayyar Pune, April 7, 2006

Director

2006USD

2005INRFor the year ended March 31

2006INR

2005USD

Income 27,537,110 1,229,807,333 14,577,666 651,038,564

Profit/ (Loss) before tax 1,462,762 65,326,951 (3,001,518) (134,047,794)

Profit/ (Loss) after tax 792,750 35,404,215 (1,815,201) (81,066,877)

72

Tech Mahindra (Americas) Incorporated A wholly owned subsidiary of Tech Mahindra Limited, an India CorporationRichardson, Texas

We have audited the accompanying balance sheets of Tech Mahindra (Americas) Incorporated, a wholly owned

subsidiary of Tech Mahindra Limited, an India corporation, as of March31, 2006 and 2005, and the related statements

of income and retained earnings and cash flows for the years then ended. These financial statements are the

responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements

based on our audits.

We conducted our audits in accordance with U.S. generally accepted auditing standards. Those standards require that

we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of

material misstatement. An audit includes consideration of internal control over financial reporting as a basis for

designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion

on the effectiveness of the Organization’s internal control over financial reporting. Accordingly, we express no such

opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the

financial statements, assessing the accounting principles used and significant estimates made by management, as well

as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our

opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of

Tech Mahindra (Americas) Incorporated, a wholly owned subsidiary of Tech Mahindra Limited, an India corporation, as

of March 31, 2006 and 2005, and the results of its operations and its cash flows for the years then ended in conformity

with U.S. generally accepted accounting principles.

Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole.

The Supplemental Schedules of Income and Expenses on page 9 are presented for purposes of additional analysis and

are not a required part of the basic financial statements. Such information has been subjected to the auditing

procedures applied in the audits of the basic financial statements and, in our opinion is fairly stated in all material

respects in relation to the basic financial statements taken as a whole.

Colorado Springs, ColoradoApril 7, 2006

INDEPENDENT AUDITORS REPORT


73


Tech Mahindra (Americas) Incorporated

a wholly owned subsidiary of Tech Mahindra Limited,

an India corporation

Richardson, Texas

Our reports on our audits of the basic financial statements of Tech Mahindra(Americas) Incorporated, a

wholly owned subsidiary of Tech Mahindra Limitied, an India corporation, for 2006 and 2005 appear on

page1. We conducted our audits in accordance with U.S. generally accepted auditing standards for the

purpose of forming an opinion on the basic financial statements taken as a whole. The information on pages

11-18 are presented for purposes of additional analysis and are not a required part of the basic financial

statements. It has been subjected to the auditing procedures applied in the audits of the basic financial

statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial

statements taken as a whole. Foreign Currency amounts in the supplemental schedules are translated for convenience

into Indian Rupees at the exchange rate of Rs.44.66 to 1.00 USD, which is the average of the telegraphic buying and

selling rate quoted by the Mumbai Branch of the State Bank of India on March 31, 2006

Colorado Springs, Colorado

April 7, 2006

INDEPENDENT AUDITORS REPORT ON SUPPLEMENTAL SCHEDULE

74

SUPPLEMENTAL BALANCE SHEETS

Years Ended March 31,

2006 2006 2005 2005

USD INR USD INR

ASSETS :

Current assets :

Cash (including 295,565 (13,199,933 INR) and

412,000(18,399,920 INR) in interest bearing

account as of March 31,2006 and 2005, respectively) 461,264 20,600,050 1,024,400 45,749,704

Accounts receivable, trade (Note 6) 2,269,237 101,344,124 3,089,997 137,999,266

Deferred income tax asset (Note 3) 1,050,000 46,893,000 420,000 18,757,200

Employee advances 364,850 16,294,201 79,500 3,550,470

Prepaid expenses and other current assets 3,355 149,834 55,960 2,499,174

Total current assets 4,148,706 185,281,210 4,669,857 208,555,814

Deferred income tax asset (Note 3) 1,344,290 60,035,991 2,589,393 115,642,291

Fixtures and equipment

(less accumulated depreciation of $64,873

(2,897,228 INR) and $172,955

(7,724,170 INR) as of

March 31,2006 and 2005, respectively) 44,051 1,967,318 104,080 4,648,213

Security deposits 63,987 2,857,659 16,003 714,694

Total Assets 5,601,034 250,142,178 7,379,333 329,561,012

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:

Current liabilities:

Accounts payable and accrued expenses 2,627,046 117,323,874 1,263,601 56,432,421

Due to parent (Note 4) 586,599 26,197,511 9,521,093 425,212,013

Total current liabilities 3,213,645 143,521,386 10,784,694 481,644,434

Note payable to parent (Note 5) 5,000,000 223,300,000 - -

Total liabilities 8,213,645 366,821,386 10,784,694 481,644,434

Stockholder's Equity

Common stock - $1 par value - 500,000

shares authorized,

375,000 shares issued and outstanding 375,000 16,747,500 375,000 16,747,500

Retained earnings (deficit) (2,987,611) (133,426,707) (3,780,361) (168,830,922)

Total stockholders' equity (2,612,611) (116,679,207) (3,405,361) (152,083,422)

Total Liabilities and Stockholders' Equity 5,601,034 250,142,178 7,379,333 329,561,012

$

$


75


Schedule 2006 2006 2005 2005

USD INR USD INR

INCOME (Note 6) I 27,537,110 1,229,807,333 14,577,666 651,038,564

EXPENSES:

Personnel II 13,424,903 599,556,168 4,707,188 210,223,016

Operating and other expenses III 12,561,354 560,990,070 12,820,621 572,568,934

Depreciation 88,091 3,934,144 51,375 2,294,408

Total expenses 26,074,348 1,164,480,382 17,579,184 785,086,357

Income (Loss) before income tax expense 1,462,762 65,326,951 (3,001,518) (134,047,794)

Income tax expense (benefit) (Note 3) 670,012 29,922,736 (1,186,317) (52,980,917)

NET INCOME (LOSS) 792,750 35,404,215 (1,815,201) (81,066,877)

Retained Deficit, Beginning of Year (3,780,361) (168,830,922) (1,965,160) (87,764,046)

Retained Deficit, End of Year (2,987,611) (133,426,707) (3,780,361) (168,830,922)


SUPPLEMENTAL STATEMENTS OF INCOME AND RETAINED EARNINGS

76

SUPPLEMENTAL STATEMENTS OF CASH FLOWS


2006 2006 2005 2005

USD INR USD INR

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss) 792,750 35,404,215 (1,815,201) (81,066,877)

Adjustments to reconcile net income to cash

used by operating activities :

Depreciation 88,091 3,934,144 51,375 2,294,408

Changes in operating assets and liabilities:

Accounts receivable, trade 820,760 36,655,142 (383,156) (17,111,747)

Employee advances (285,350) (12,743,731) (29,560) (1,320,150)

Prepaid expenses and other current assets 52,605 2,349,339 135,768 6,063,399

Accounts payable and accrued expenses 1,363,445 60,891,454 294,675 13,160,186

Deferred income tax benefit 615,103 27,470,500 (1,181,990) (52,787,673)

Due to parent (8,934,494) (399,014,502) 2,853,064 127,417,838

Net Cash Used by Operating Activities (5,487,090) (245,053,439) (75,025) (3,350,616)

CASH FLOWS FROM INVESTING ACTIVITIES:

Fixtures and equipment purchased (28,062) (1,253,249) (24,903) (1,112,168)

Net change in security deposits (47,984) (2,142,965) (2,763) (123,396)

Net Cash Used by Investing Activities (76,046) (3,396,214) (27,666) (1,235,564)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from note payable from parent 5,000,000 223,300,000 - -

Net Cash Provided by Financing Activities 5,000,000 223,300,000 - -

Net Change in Cash (563,136) (25,149,654) (102,691) (4,586,180)

Cash, beginning of year 1,024,400 45,749,704 1,127,091 50,335,884

Cash, end of year 461,264 20,600,050 1,024,400 45,749,704

Supplemental Disclosures:

Cash paid for income taxes 19,528 872,120 747 33,361

Cash paid for interest (None capitalized) 73,630 3,288,316 - -


77



1. NATURE OF ORGANIZATION:

Tech Mahindra (Americas) Incorporated (TMA), formerly known as MBT International Incorporated, is a wholly-owned

subsidiary of Tech Mahindra Limited (TML), formerly known as Mahindra - British Telecom Limited, which is incorporated in the

country of India. TMA was incorporated in the State of New Jersey in November 1993, and provides computer consulting and

programming support services.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The financial statements of TMA have been prepared on the accrual basis of accounting. The preparation of financial statements

in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that

affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Certain prior year

amounts have been reclassified to conform to the current year presentation. The significant accounting policies are described

as follows:

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of checking and savings accounts and a certificate of deposit with an original maturity of less

than three months. These accounts may, at times, exceed federally insured limits. TMA has not experienced any losses on such

accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

ACCOUNTS RECEIVABLE, TRADE

Accounts receivable consists primarily of amounts due from customers for services provided by TMA and is net of an allowance

for doubtful accounts of $15,000 (669,900 INR) and $55,283 (2,468,939 INR) as of March 31, 2006 and 2005, respectively.

Management's estimate of uncollectible accounts was based upon an analysis of past due accounts. This estimate is based upon

historical collections. Accounts are written off when all methods to collect have been exhausted.

FIXTURES AND EQUIPMENT

Fixtures and equipment are recorded at cost and depreciated using the straight-line method over an estimated remaining

useful life of three years. TMA capitalizes purchases greater than $500 (22,330 INR) with less amounts expensed in the year

purchased.

REVENUE AND EXPENSE

TMA entered into a new contract, effective January 1,2005, with TML. Under the new contract TMA pays TML 100% of all

contract revenue. However, TML, has agreed to: 1) reimburse TMA all direct project expenses, plus 5.75% of these expenses

and 2) reimburse TMA all indirect costs, plus 4% for services as marketing service provider. Expenses are recorded when

incurred.

SUPPLEMENTAL NOTES TO FINANCIAL STATEMENTS

MARCH 31 2006 AND 2005

78

3. INCOME TAXES:

MBTI accounts for income taxes under the provisions of Financial Accounting Standards ("SFAS") No. 109, Accounting for

Income Taxes.

Income tax expense (benefit) consists of the following:

Federal State


2006 2006 2005 2005

USD INR USD INR

521,746 23,301,176 (940,000) (41,980,400)

148,266 6,621,560 (246,317) (11,000,517)

670,012 29,922,736 (1,186,317) (52,980,917)

TMA has incurred net operating losses of $5,715,341 (255,247,129 INR) which are available to be carried forward through March

31,2019. TMA expects to be able to utilize the entire deferred tax benefit during that period, and therefore, no valuation allowance

has been recorded to reduce the asset.

4. TRANSACTIONS WITH RELATED PARTIES:

TMA had an agreement with TML, which was terminated on December 31,2004. Under this agreement TML made available to TMA

qualified employees to work in the United States on a temporary basis. In addition to wages paid to employees, TMA paid TML

$1,200 (53,592 INR) per month for each employee. TMA was responsible for ransportation between India and the United States for

such employees. In addition, TMA subcontracted with TML for computer consulting and programming support services related to

certain contracts obtained by TMA. TMA paid TML 90% of the total contract revenues recognized under this agreement.

TMA entered into a new contract, effective January 1,2005, with TML. Under the new contract TMA pays TML 100% of all contract

revenue. However, TML, has agreed to: 1) reimburse TMA all direct project expenses, plus 5.75% of these expenses and 2)

reimburse TMA all indirect costs, plus 4% for services as marketing service provider. The above transactions are summarized as

follows:


2006 2006 2005 2005

USD INR USD INR

Beginning balance, due to parent 9,521,093 425,212,013 6,668,029 297,794,175

Secondment fees incurred - - 132,000 5,895,120

Contract revenue (Note 6) 16,556,022 739,391,943 11,959,401 534,106,849

Income from parent (27,506,047) (1,228,420,059) (134,862) (6,022,937)

Payments to parent (18,837,153) (841,267,253) (12,695,103) (566,963,300)

Advances received from parent 20,852,684 931,280,867 7,864,079 351,209,768

Payments made on behalf of parent - - (4,272,451) (190,807,662)

Ending balance, due to parent 586,599 26,197,511 9,521,093 425,212,013


MARCH 31 2006 AND 2005 (contd.)

Federal

State


79


4. TRANSACTIONS WITH RELATED PARTIES contd.:

Due to parent consists of:


2006 2006 2005 2005

USD INR USD INR

Amounts due to parent 8,426,451 376,325,302 10,620,960 474,332,074

Amounts due from parent (7,839,852) (350,127,790) (1,099,867) (49,120,060)

586,599 26,197,511 9,521,093

5. NOTE PAYABLE DUE TO PARENT:

Note payable due to parent consists of the following:


2006 2006 2005 2005

USD INR USD INR

Unsecured note payable due to parent,

interest at 4% per annum, interest only

payments due semi-annually, unpaid interest

and principal due July 2012. 5,000,000 223,300,000 - -

6. CONCENTRATIONS:

Income from parent for the year ended March 31,2006 is approximately 99.9% of total income.

In addition, two customers comprise a significant portion of contract revenue. This revenue is received by TMA and transferred to

TML. Contract revenue and accounts receivable concentrations are as follows:

Consulting sales revenue concentrations:


2006 2006 2005 2005

Amount Concentration Amount Concentration

Convergys, Inc. $ 4,699,925 28% $ 2,309,485 16%

Qwest $ 5,763,414 35% $ 1,771,122 12%

Consulting sales revenue concentrations (INR):


2006 2006 2005 2005


Convergys, Inc. INR 209,898,651 28% INR 103,141,600 16%

Qwest INR 257,394,069 35% INR 79,098,309 12%

425,212,013



80

7. COMMITMENTS:

TMA leases office space under operating leases. Rent expense under these operating leases was $203,578 (9,091,793 INR)

and $229,041 (10,228,971 INR) for the years ended March 31,2006 and 2005, respectively. Future minimum lease payments

under operating leases are as follows.

Years Ending March 31, USD INR

2007 178,781 7,984,359

2008 78,144 3,489,911

256,925 11,474,271

In June 2005, TMA entered into a sublease agreement, which expires September 2007. Future minimum rent income under

this sublease at March 31,2006, is as follows:

Years Ending March 31, USD INR

2007 96,829 4,324,383

2008 52,662 2,351,885

149,491 6,676,268

8. FINANCIAL CONDITION:

As of March 31, 2006, TMA had a deficit in stockholders' equity of $2,612,611 (116,679,207 INR). TML has represented that

they will continue to support TMA until its stockholders' equity is positive. Additionally, TMA has entered into a contract with

TML, which generates a profit for them (see Note 4).

Accounts receivable concentrations (INR):

Year Ended March 31,

2006 2005


Convergys, Inc. INR 37,047,748 37% INR 34,298,121 25%

Qwest INR 32,639,359 32% INR 20,001,070 14%

6. CONCENTRATIONS contd.:

Accounts receivable concentrations:


2006 2005


Convergys, Inc. $829,551 37% $767,983 25%

Qwest $730,841 32% $447,852 14%




81


SUPPLEMENTAL SCHEDULES OF INCOME AND EXPENSES


2006 2006 2005 2005

USD INR USD INR

Schedule I

INCOME:

Contract revenue 16,556,022 739,391,943 14,432,537 644,557,102

Transfers to parent (16,556,022) (739,391,943) - -

- - 14,432,537 644,557,102

Income from parent (See Note 4) 27,506,047 1,228,420,059 134,862 6,022,937

Interest income on bank deposits 31,063 1,387,274 10,267 458,524

27,537,110 1,229,807,333 14,577,666 651,038,564

Schedule II

PERSONNEL EXPENSES:

Salaries:

Software engineers 8,777,478 392,002,167 1,777,736 79,393,690

Administrative 2,770,656 123,737,497 2,245,476 100,282,958

Payroll taxes 895,014 39,971,325 273,683 12,222,683

Employee benefits 981,755 43,845,178 410,293 18,323,685

13,424,903 599,556,168 4,707,188 210,223,016

Schedule III

OPERATING AND OTHER EXPENSES:

Contracted services 5,598,183 250,014,853 559,505 24,987,493

TML secondment fees - - 132,000 5,895,120

TML offshore project charges - - 9,313,087 415,922,465

Marketing and advertising 62,474 2,790,089 627,666 28,031,564

Insurance 100,908 4,506,551 233,406 10,423,912

Travel 5,974,695 266,829,879 427,519 19,092,999

Entertainment 27,858 1,244,138 3,283 146,619

Professional fees 164,893 7,364,121 860,783 38,442,569

Rent 203,578 9,091,793 229,041 10,228,971

Communications 150,308 6,712,755 263,656 11,774,877

Office expenses 35,135 1,569,129 53,130 2,372,786

Interest expense 119,955 5,357,190 - -

Recruiting - - 13,885 620,104

Miscellaneous expenses 123,367 5,509,570 103,660 4,629,456

12,561,354 560,990,070 12,820,621 572,568,934

82

Tech Mahindra GmbH

(Formerly MBT GmbH)

Supervisory Board

1. Mr. Vineet Nayyar - Chairman2. Mr. Ulhas N. Yargop 3. Mr. Clive Goodwin

Managing DirectorMr. Sonjoy Anand

Registered OfficeRather Straße 110 b, 40476 Düsseldorf Germany

BankersDresdner Bank AGState Bank of India, Germany

AuditorsDeloitte and Touche, GmbHDüsseldorf, Germany

TECH MAHINDRA GmbH

83


CONTENTS PAGE

Managing Director’s Report to the Shareholders 85


Independent Auditors’ Memo 87

Balance Sheet 88

Profit & Loss Statement 89


84

Annual Report 2005 - 2006 TECH MAHINDRA GmbH

MANAGING DIRECTOR'S REPORT TO THE SHAREHOLDERS

stYour Managing Director presents his report together with the audited accounts for the period ended 31 March 2006.

The income for the year has increased by 32,492 Euros over the previous year. The Company continued its investment in sales &

marketing in Europe and focused on optimizing costs.

SHARE CAPITAL

The Company's share capital is Euro 575,000. The share capital is fully paid up.

CHANGE OF NAME

During the year, the Company's name was changed from MBT GmbH to Tech Mahindra GmbH. This was done in line with the change of

name of the Parent Company, Tech Mahindra Limited.

MANAGEMENT

The current Chairman of the Supervisory Board is Mr. Vineet Nayyar. The other members of the Board are Mr. Ulhas N. Yargop and Mr.

Clive Goodwin.

Mr. Sonjoy Anand is the sole Managing Director of the Company.

ACKNOWLEDGEMENTS

Your Managing Director gratefully acknowledges the contributions made by the employees towards the success of the Company. Your

Managing Director is also thankful for the co-operation and assistance received from customers, suppliers, bankers, State and Federal

Government Authorities and the shareholder.

For the year ended March 31 2006 2006 2005 2005

Euro INR Euro INR

Income

Profit/(Loss) after tax

5,259,040 285,671,026 5,226,551 283,906,227

313,978 17,055,274 (2,182,297) (118,542,368)

FINANCIAL RESULTS

Sonjoy AnandManaging DirectorPune, April 11, 2006

85

We have audited the annual financial statements, comprising the balance sheet, the income statement and the notes to the financial

statements , together with the bookkeeping system, of TECH MAHINDRA GmbH, Dusseldorf, for the business year from April 1, 2005

to March 31, 2006. The maintenance of the books and records and the preparation of the annual financial statements pursuant to

German commercial law are the responsibility of the Company's management. Our responsibility is to express an opinion on these

annual financial statements, together with the bookkeeping system, based on our audit.

We conducted our audit of the annual financial statements by appropriate application of § 317 HGB ["Handelsgesetzbuch": "German

Commercial Code”] and German generally accepted standards for the audit of financial statements promulgated by the Institut der

Wirtschaftsprufer. Those standards require that we plan and perform the audit such that misstatements materially affecting the

presentation of the net assets, financial position and results of operations in the annual financial statements in accordance with

German principles of proper accounting are detected with reasonable assurance. Knowledge of the business activities and the

economic and legal environment of the Company and evaluations of possible mis-statements are taken into account in the

determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting

the disclosures in the books and record and the annual financial statements are examined primarily on a test basis within the

framework of the audit. The audit includes assessing the accounting principles used and significant estimates made by management,

as well as evaluating the overall presentation of the annual financial statements. We believe that our audit provides a reasonable basis

for our opinion.

Our audit has not led to any reservations.

In our opinion,based on the findings of our audit, the annual financial statements of TECH MAHINDRA GmbH, Dusseldorf, comply with

the legal requirements and give a true and fair view of the net assets, financial position and the results of operations of Companyf, in

accordance with German principles of proper accounting.

Without qualifying this conclusion, we draw attention to the fact that continued existence at TECH MAHINDRA GmbH, Dusseldorf,

depends on the appropriate funding by the shareholders and maintenance at contracts governing the mutual business relationships

concluded with the shareholders.

Dusseldorf, April 7, 2006

Deloitte & Touche GmbH

Wirtschaftsprufungsgesellschaft

Signed: Thiede Signed: Herrel

Wirtschaftsprufer Wirtschaftsprufer

[German Public Auditor] [German Public Auditor]

INDEPENDENT AUDITORS' REPORT

86

TECH MAHINDRA GmbH

Date: April 11, 2006

To: TECH MAHINDRA GmbH, Dusseldorf

From: Detlef Herrel

Subject: Converting of Financial Statements of TECH MAHINDRA GmbH (formerly MBT GmbH), Dusseldorf

Dear Sirs,

Please find attached the Balance Sheet and Profit and Loss Account of TECH MAHINDRA GmbH, Dusseldorf, signed for identification

purposes only.

Foreign Currency amounts (including prior year amounts) are translated for convenience into Indian Rupees (INR) at the exchange

rate of Rs. 54,32 = EUR 1 which is the average of the telegraphic transfer buying and selling rates quoted by the Mumbai branch of

State Bank of India on March 31, 2006.

Kind regards,

Deloitte & Touche GmbH

Wirtschaftsprufungsgesellschaft

(Detief Herrel)

Wirtschaftsprufer

MEMO

87


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ARCH

31,

2006

88

TECH MAHINDRA GmbH

2005/2006 2005/2006 Prior year Prior year

EUR INR EUR INR

1. Sales 5.319.645,23 288,963,129 4.923.764,79 267,458,903

2. Variance in inventories (86.725,60) (4,710,935) 86.725,60 4,710,935

3. Other operating income 24.917,14 1,353,499 211.519,67 11,489,748

4. Cost of services (2.743.589,76) (149,031,796) (2.556.047,86) (138,844,520)

5. Personnel expenses

a) Wages and Salaries (1.472.931,50) (80,009,639) (3.019.504,45) (164,019,482)

b) Social security (193.505,86) (10,511,238) (357.572,37) (19,423,331)

6. Depreciation on intangible fixed assets and -

tangible assets (43.590,24) (2,367,822) (56.747,49) (3,082,524)

7. Other operating expenses (491.444,34) (26,695,257) (1.418.814,04) (77,069,979)

8. Other interest and similar income 1.202,75 65,333 4.540,52 246,641

9. Interest and similar expenses - - (161,24) (8,759)

10. Net gain/loss for the year 313.977,82 17,055,274 (2.182.296,87) (118,542,368)

Rate current year 54.32

Rate previous year 54.32

PROFIT AND LOSS ACCOUNT FOR THE PERIOD FROM APRIL 1, 2005

TO MARCH 31, 2006

89


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90

TECH MAHINDRA GmbH

A. General Information

The annual financial statements for the business year from April 1 2005 to March 31 2006 comply with the valid stipulations of the

German Commercial Code (HGB) and the statutes for limited liability companies (GmbHG). The Company has partly taken favour

of disclosure simplifications of the German Commercial Code.

The Company is a small corporation according to Sec. 267 para. 1 German Commercial Code.

B. Information on Accounting and Valuation Methods

Intangible assets are valued at acquisition cost less scheduled straight-line amortization and depreciation.

Fixed assets are valued at acquisition cost less scheduled straight-line amortization and depreciation in accordance with their

estimated useful life. Low value assets (less than EUR 410) are fully depreciated in the year of their acquisition.

Receivables and other assets as well as liquid funds are capitalized at nominal value. If necessary, allowances for implied risk are

set up.

The subscribed capital is valued at nominal value.

Other accruals cover all risks and contingent liabilities identifiable as at the balance sheet date.

The liabilities are recorded at the amount at which they will be repaid.

C. Notes to the Balance Sheet

Receivables and other assets

All receivables and other assets have a residual term of less than one year.

The receivables from affiliated companies relate to trade receivables. Receivables from affiliated companies in the amount of

EUR 994.295.10 (INR 54,010,109) relate to shareholders.

Other accruals

Other accruals comprise mainly of accruals for vacation not taken (EUR 45 thousand, INR 2,444 thousand), management

bonuses (EUR 98 thousand, INR 5,323 thousand), year-end audit (EUR 13 thousand, INR 706 thousand) and other accruals

(EUR 134 thousand, INR 7,279 thousand).

Liabilities

All liabilities have a residual term of less than one year.

The liabilities to affiliated companies relate to trade payables. Payables to affiliated companies in the amount of

EUR 783.486.20 (INR 42,558,970) relate to shareholders.

D. Other Required Disclosures

As at the balance sheet date, the financial commitments as stipulated by Sec. 285 para. 3 German Commercial Code are as

follows:

NOTES TO THE FINANCIAL STATEMENTS FOR THE BUSINESS YEAR 2005/2006

Financial commitments from rent contracts EUR INR

Up to one year 72.124.80 4,026,459

One to two years 580.80 31,549

Two to three years 580.80 31,549

Later 24.20 1,315

Financial commitments from leasing contracts EUR INR

Up to one year 39.522.47 2,145,861

One to two years 15.282.00 830,118

Two to three years 1.177.50 63,962

Later 0.00 0.00

Management

Managing directors were:

Marcus Schuler, Sprockhovel, Germany, (until 31 July 2005)

Sonjoy Anand, Pune, India

91


Supervisory boardThe supervisory board comprises of the following three members:

Ulhas Yargop, Mumbai, India

Clive Goodwin, Middlesex, Great Britain

Vineet Nayyar, New Delhi, India, chairman

Group affiliationTECH MAHINDRA LIMITED., Mumbai, India, prepares the consolidated financial statements for the smallest and largest group of

companies in which the annual financial statements of TECH MAHINDRA GmbH, Dusseldorf, are included. These annual financial

statements are available at the registered office of TECH MAHINDRA LIMITED., Mumbai, India.

Sonjoy Anand

Managing Director

Dusseldorf, April 5 2006

92

NOTES TO THE FINANCIAL STATEMENTS FOR THE BUSINESS YEAR 2005/2006 (contd.)

Annual Report 2005 - 2006 TECH MAHINDRA (SINGAPORE) Pte. Ltd.

Tech Mahindra (Singapore) Pte. Limited(Formerly MBT Software Technologies Pte. Limited)

Board of Directors1. Mr. Sonjoy Anand2. Mr. Lim Tiong Beng

Registered Office152 Beach Road #32-01/04, Gateway Tower East Singapore 189721

BankersStandard Chartered Bank

AuditorsDeloitte and Touche, SingaporeCertified Public Accountants, Singapore

93

CONTENTS PAGE

Report of the Directors’ 95

Statement of Directors 96

Auditors’ Report 96

Balance Sheet 97

Profit & Loss Statement 97

Statement of Changes in Equity 98

Cash Flow Statement 98


Auditors' Memo 105

94


The directors present their report together with the audited financial statements of the company for the financial year ended March 31,

2006.

1. DIRECTORS

The directors of the company in office at the date of this report are:

Lim Tiong Beng

Sonjoy Anand

2. ARRANGEMENTS TO ENABLE DIRECTORS TO ACQUIRE BENEFITS BY MEANS OF THE ACQUISITION OF SHARES

AND DEBENTURES

Neither at the end of the financial year nor at any time during the financial year did there subsist any arrangement whose object is

to enable the directors to acquire benefits by means of the acquisition of shares or debentures in the company or any other body

corporate.

3. DIRECTORS' INTERESTS IN SHARES AND DEBENTURES

The directors holding office at the end of the financial year had no interests in the share capital of the company and related

corporations as recorded in the register of directors' shareholdings kept by the company under Section 164 of the Singapore

Companies Act, except as follows:

Options registered

in the name of director

Name of director and company

in which interest is held At beginning of year At end of year

Tech Mahindra Limited Units of Indian Rupee 2 each

Sonjoy Anand 25,000 29,400

4. DIRECTORS' RECEIPT AND ENTITLEMENT TO CONTRACTUAL BENEFITS

Since the beginning of the financial year, no director has received or become entitled to receive a benefit which is required to be

disclosed under Section 201(8) of the Singapore Companies Act, by reason of a contract made by the company or a related

corporation with the director or with a firm of which he is a member, or with a company in which he has a substantial financial

interest. Certain directors received remuneration from related corporations in their capacities as directors and/or executives of

those related corporations.

5. OPTION TO TAKE UP UNISSUED SHARES

During the financial year, no option to take up unissued shares of the company was granted.

6. OPTION EXERCISED

During the financial year, there were no shares of the company issued by virtue of the exercise of an option to take up unissued

shares.

7. UNISSUED SHARES UNDER OPTION

At the end of the financial year, there were no unissued shares of the company under option.

8. AUDITORS

The auditors, Deloitte & Touche, have expressed their willingness to accept re-appointment.

Lim Tiong Beng

April 3, 2006 Sonjoy Anand

REPORT OF THE DIRECTORS

TECH MAHINDRA (SINGAPORE) Pte. Ltd.

95

We have audited the accompanying financial statements of Tech Mahindra (Singapore) Pte. Limited as set out on pages 4 to 17 for the

year ended March 31, 2006. These financial statements are the responsibility of the company's directors. Our responsibility is to

express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with Singapore Standards on Auditing. Those Standards require that we plan and perform the

audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes

examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes

assessing the accounting principles used and significant estimates made by the directors, as well as, evaluating the overall financial

statements presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion,

a) the accompanying financial statements are properly drawn up in accordance with the provisions of the Singapore Companies Act,

Cap. 50 (the “Act”) and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the

company as at March 31, 2006 and of the results, changes in equity and cash flows of the company for the year ended on that

date; and

b) the accounting and other records required by the Act to be kept by the company have been properly kept in accordance with the

provisions of the Act.

Deloitte & touche

Certified Public Accountants

Singapore

April 3, 2006

AUDITORS' REPORT TO THE MEMBER OF

TECH MAHINDRA (SINGAPORE) PTE. LIMITED

(Formerly known as MBT Software Technologies Pte. Ltd.)

96

In the opinion of the directors, the accompanying financial statements set out on pages 4 to 17 are drawn up so as to give a true and

fair view of the state of affairs of the company as at March 31, 2006 and of the results, changes in equity and cash flows of the company

for the financial year then ended and at the date of this statement there are reasonable grounds to believe that the company will be

able to pay its debts as and when they fall due.

Lim Tiong Beng

Sonjoy Anand

April 3, 2006

STATEMENT OF DIRECTORS

(Formerly known as MBT Software Technologies Pte. Ltd.)


Note 2006 2005

$ $

Revenue 12 3,798,920 1,737,222

Cost of sales (620,722) -

Gross profit 3,178,198 1,737,222

Other operating expenses 13 (3,338,003) (1,724,880)

Other income 225 -

(Loss) Profit before income tax 14 (159,580) 12,342

Income tax 15 - -

(Loss) Profit after income tax (159,580) 12,342

See accompanying notes to financial statements.

Note 2006 2005

$ $

ASSETS

Current assets:

Cash and bank balances 6 200,246 70,531

Trade receivables 7 744,706 675,944

Other receivables and prepayments 8 48,761 17,382

Total current assets 993,713 763,857

Non-current asset:

Equipment 9 13,217 -

Total assets 1,006,930 763,857

LIABILITIES AND EQUITY

Current liability:

Other payables 10 692,192 289,539

Capital and reserves:

Issued capital 11 50,000 50,000

Accumulated profits 264,738 424,318

Total equity 314,738 474,318

Total liabilities and equity 1,006,930 763,857


BALANCE SHEET MARCH 31, 2006

PROFIT AND LOSS STATEMENT YEAR ENDED MARCH 31, 2006

TECH MAHINDRA (SINGAPORE) Pte. Ltd.

97

STATEMENT OF CHANGES IN EQUITY YEAR ENDED MARCH 31, 2006

Issued capital Accumulated profits Total

$ $ $

Balance at April 1, 2004 50,000 411,976 461,976

Net profit for the year - 12,342 12,342

Balance at March 31, 2005 50,000 424,318 474,318

Net loss for the year - (159,580) (159,580)

Balance at March 31, 2006 50,000 264,738 314,738


2006 2005

$ $

Cash flows from operating activities:

(Loss) Profit before income tax (159,580) 12,342

Adjustments for:

Interest income (223) -

Allowance for doubtful debts 77,027 -

Depreciation expense 8,998 12,257

Operating (loss) profit before working capital changes (73,778) 24,599

Trade receivables (145,789) (337,373)

Other receivables and prepayments (31,269) 65,722

Other payables 402,653 251,512

Cash generated from operations 151,817 4,460

Interest received 113 -

Income tax paid - (28)

Net cash from operating activities 151,930 4,432

Cash flows used in investing activities:

Increase in pledged fixed deposits (113) (20,000)

Purchase of equipment (22,215) (12,257)

Net cash used in investing activities (22,328) (32,257)

Net increase (decrease) in cash and cash equivalents 129,602 (27,825)

Cash and cash equivalents at beginning of year 50,531 78,356

Cash and cash equivalents at end of year (Note 6) 180,133 50,531


CASH FLOW STATEMENT YEAR ENDED MARCH 31, 2006

98


1. General

The company (Registration No. 200203658M) is incorporated in

the Republic of Singapore with its principal place of business and

registered office at 152 Beach Road #32-01/04, Gateway East,

Singapore 189721. The financial statements are expressed in

Singapore dollars.

The company is principally engaged in providing consultancy

and services relating to information technology and

development of software solutions and products.

The company changed its name from MBT Software

Technologies Pte. Limited to Tech Mahindra (Singapore) Pte.

Limited on January 16, 2006.

The financial statements of the company for the financial year

ended March 31, 2006 were authorised for issue by the Board of

Directors on April 3, 2006.

2. Summary Of Significant Accounting Policies

BASIS OF ACCOUNTING - The financial statements are prepared in

accordance with the historical cost convention and are drawn up

in accordance with the provisions of the Singapore Companies

Act and Singapore Financial Reporting Standards (“FRS”).

In the current financial year, the company has adopted all the

new and revised FRSs and Interpretations of FRS (“INT FRS”)

issued by the Council on Corporate Disclosure and Governance

that are relevant to its operations and effective for annual

periods beginning on or after January 1, 2005. The adoption of

these new/revised FRSs and INT FRSs has no material effect on

the financial statements.

At the date of authorisation of these financial statements, the

following FRSs, INT FRSs and amendments to FRSs were issued

but not effective:

FRS 40 - Investment Property

FRS 102 - Share Based Payment

FRS 106 - Exploration for and Evaluation of

Mineral Resources

FRS 107 - Financial Instruments: Disclosures

INT FRS 104 - D e t e r m i n i n g w h e t h e r a n

Arrangement contains a Lease

INT FRS 105 - Rights to Interests arising from

Decommissioning, Restoration and

Environmental Rehabi l i tat ion

Funds

INT FRS 106 - Liabilities Arising from Participating

in a Specific Market Waste Electrical

and Electronic Equipment

INT FRS 107 - Applying the Restatement Approach

under FRS 39 Financial Reporting in

Hyperinflationary Economies

Amendments to FRS 1 Presentation of Financial Statements on

Capital Disclosures.

Amendments to FRS 21 The Effects of Changes in Foreign

Exchange Rates on net investment in a foreign operation.

Amendments to FRS 39 Financial Instruments: Recognition and

Measurement on hedge accounting provisions, fair value option

and financial guarantee contracts.

Amendments to FRS 101 First-time Adoption of Financial

Reporting Standards on comparative disclosures for FRS 106

Exploration for and Evaluation of Mineral Resources.

Amendments to FRS 104 Insurance Contracts on financial

guarantee contracts.

Consequential amendments were also made to various

standards as a result of these new/revised standards.

The directors anticipate that the adoption of these FRSs, INT

FRSs and amendments to FRSs that were issued but not yet

effective until future periods will not have a material impact on

the financial statements of the company.

Financial Instruments

Financial assets and financial liabilities are recognised on the

company's balance sheet when the company becomes a party to

the contractual provisions of the instrument.

Cash and bank balances

Cash and bank balances comprise cash at bank and fixed

deposits that are subject to an insignificant risk of changes in

value.

Trade and other receivables

Trade and other receivables are measured at initial recognition

at fair value, and are subsequently measured at amortised cost

using the effective interest rate method. Appropriate

allowances for estimated irrecoverable amounts are recognised

in the profit and loss statement when there is objective evidence

that the asset is impaired. The allowance recognised is

measured as the difference between the asset's carrying amount

and the present value of estimated future cash flows discounted

at the effective interest rate computed at initial recognition.

Financial liabilities and equity

Financial liabilities and equity instruments issued by the

company are classified according to the substance of the

contractual arrangements entered into and the definitions of a

financial liability and an equity instrument. An equity

instrument is any contract that evidences a residual interest in

the assets of the company after deducting all of its liabilities.

The accounting policies adopted for specific financial liabilities

and equity instruments are set out below.

Trade and other payables

Trade and other payables are initially measured at fair value, and

are subsequently measured at amortised cost, using the

effective interest rate method.

Equity instruments

Equity instruments issued by the company are recorded at the

proceeds received, net of direct issue costs.

EQUIPMENT - Equipment are carried at cost less accumulated

depreciation and any impairment loss where the recoverable

amount of the asset is estimated to be lower than its carrying

amount.

NOTES TO FINANCIAL STATEMENTS MARCH 31, 2006

99

Depreciation is charged so as to write off the cost of assets, over

their estimated useful lives, using the straight-line method, on

the following basis:

Equipment - 1 year

The gain or loss arising on the disposal or retirement of an asset

is determined as the difference between the sales proceeds and

the carrying amount of the asset and is recognised as income.

Fully depreciated assets still in use are retained in the financial

statements.

Impairment Of Assets

At each balance sheet date, the company reviews the carrying

amounts of its assets to determine whether there is any

indication that those assets have suffered an impairment loss.

If any such indication exists, the recoverable amount of the

asset is estimated in order to determine the extent of the

impairment loss (if any). Where it is not possible to estimate the

recoverable amount of an individual asset, the company

estimates the recoverable amount of the cash-generating unit to

which the asset belongs.

Recoverable amount is the higher of fair value less costs to sell

and value in use. In assessing value in use, the estimated future

cash flows are discounted to their present value using pre-tax

discount rate that reflects current market assessments of the

time value of money and the risks specific to the asset.

If the recoverable amount of an asset/cash-generating unit is

estimated to be less than its carrying amount, the carrying

amount of the asset/cash-generating unit is reduced to its

recoverable amount. An impairment loss is recognised as an

expense immediately.

When an impairment loss subsequently reverses, the carrying

amount of the asset/cash-generating unit is increased to the

revised estimate of its recoverable amount, but only to the

extent that the increased carrying amount does not exceed the

carrying amount that would have been determined had no

impairment loss been recognised for the asset/cash-generating

unit in prior years. A reversal of an impairment loss is

recognised as income immediately.

Provisions

Provisions are recognised when the company has a present

obligation as a result of a past event, and it is probable that the

company will be required to settle that obligation. Provisions

are measured at the directors' best estimate of the expenditure

required to settle the obligation at the balance sheet date, and

are discounted to present value where the effect is material.

LEASES Leases are classified as finance leases whenever the

terms of the lease transfer substantially all the risks and rewards

of ownership to the lessee. All other leases are classified as

operating leases.

Rentals payable under operating leases are charged to income

on a straight-line basis over the term of the relevant lease.

Revenue Recognition

Revenue is measured at the fair value of the consideration

received or receivable and represents amounts receivable for

goods and services provided in the normal course of business,

net of discounts and sales related taxes. Revenue from the

rendering of services that are of a short duration is recognised

when the services are completed.

Retirement Benefit Costs

Payments to defined contribution retirement benefit plans are

charged as an expense as they fall due. Payments made to

state-managed retirement benefit schemes, such as the

Singapore Central Provident Fund, are dealt with as payments to

defined contribution plans where the company's obligations

under the plans are equivalent to those arising in a defined

contribution retirement benefit plan.

Employee Leave Entitlement

Employee entitlements to annual leave are recognised when

they accrue to employees. A provision is made for the

estimated liability for annual leave as a result of services

rendered by employees up to the balance sheet date.

Income Tax

Income tax expense represents the sum of the tax currently

payable and deferred tax.

The tax currently payable is based on taxable profit for the year.

Taxable profit differs from profit as reported in the profit and loss

statement because it excludes items of income or expense that

are taxable or deductible in other years and it further excludes

items that are not taxable or tax deductible. The company's

liability for current tax is calculated using tax rates that have

been enacted or substantively enacted by the balance sheet

date.

Deferred tax is recognised on differences between the carrying

amounts of assets and liabilities in the financial statements and

the corresponding tax bases used in the computation of taxable

profit, and is accounted for using the balance sheet liability

method. Deferred tax liabilities are generally recognised for all

taxable temporary differences and deferred tax assets are

recognised to the extent that it is probable that taxable profits

will be available against which deductible temporary differences

can be utilised.

Deferred tax is calculated at the tax rates that are expected to

apply in the period when the liability is settled or the asset

realised. Deferred tax is charged or credited to profit or loss,

except when it relates to items charged or credited directly to

equity, in which case the deferred tax is also dealt with in

equity. Deferred tax assets and liabilities are offset when there

is a legally enforceable right to set off current tax assets against

current tax liabilities and when they relate to income taxes

levied by the same taxation authority and the company intends

to settle its current tax assets and liabilities on a net basis.

NOTES TO FINANCIAL STATEMENTS MARCH 31, 2006 (contd.)

100


Foreign Currency Transactions And Translation

The financial statements of the company are presented in the

currency of the primary economic environment in which the

entity operates (its functional currency). The financial

statements of the company are presented in Singapore dollars,

which is the functional currency of the company.

In preparing the financial statements of the company,

transactions in currencies other than the entity's functional

currency are recorded at the rates of exchange prevailing on the

date of the transaction. At each balance sheet date, monetary

items denominated in foreign currencies are retranslated at the

rates prevailing on the balance sheet date. Non-monetary items

carried at fair value that are denominated in foreign currencies

are retranslated at the rates prevailing on the date when the fair

value was determined. Non-monetary items that are measured

in terms of historical cost in a foreign currency are not

retranslated.

Exchange differences arising on the settlement of monetary

items, and on retranslation of monetary items are included in

profit or loss for the period. Exchange differences arising on the

retranslation of non-monetary items carried at fair value are

included in profit or loss for the period except for differences

arising on the retranslation of non-monetary items in respect of

which gains and losses are recognised directly in equity. For

such non-monetary items, any exchange component of that

gain or loss is also recognised directly in equity.

3. Critical Accounting Judgements And Key Sources Of

Estimation Uncertainty

Critical judgements in applying the company's accounting

policies

In the process of applying the entity's accounting policies, which

are described in Note 2 to the financial statements and key

assumptions concerning the future, management is not aware of

any judgements that have the most significant effect on the

amounts recognised in the financial statements.

Key sources of estimation uncertainty

The key assumptions concerning the future, and other key

sources of estimation uncertainty at the balance sheet date, that

have a significant risk of causing a material adjustment to the

carrying amounts of assets and liabilities within the next

financial year is as discussed below.

Allowances for bad and doubtful debts

The company makes allowances for bad and doubtful debts

based on an assessment of the recoverability of trade

receivables. Allowances are applied to trade receivables when

events or changes in circumstances indicate that the balance

may not be collectible. The identification of bad and doubtful

debts requires the use of judgement and estimates. Where the

expectation is different from the original estimate, such

difference will impact the carrying value of trade receivables and

doubtful debts expenses in the period in which such estimate

has been changed.

4. Financial Risks And Management

(i) Credit risk

Credit risk refers to the risk that a counterparty will default on its

contractual obligations resulting in a loss to the company. The

company has adopted the policy of only dealing with

creditworthy counterparties.

The carrying amount of financial assets recorded in the financial

statements, net of any provision for losses, represents the

company's maximum exposure to credit risk without taking

account of the value of any collateral or other security obtained.

(ii) Foreign currency risk

The company does not enter into derivative foreign exchange

contracts and foreign currency borrowings to hedge against

foreign currency risk. It is the company's policy not to trade in

derivative contracts.

(iii) Interest rate and liquidity risk

The company's exposure to interest rate and liquidity risks is

insignificant.

(iv) Fair value of financial assets and financial liabilities

The carrying amounts of cash and cash equivalents, trade and

other receivables and other payables approximate their

respective fair values due to the relatively short-term maturity

of the financial instruments.

5. Holding Company And Related Company Transactions

The company is a subsidiary of Tech Mahindra Limited, (2005:

Majindra- British Telecom Limited) incorporated in India which is

also the company's ultimate holding company. Related

companies in these financial statements refer to members of the

ultimate holding company's group of companies.

Some of the company's transactions and arrangements are

between members of the group and the effect of these on the

basis determined between the parties is reflected in these

financial statements. The intercompany balances are

unsecured, interest-free and repayable within the next twelve

months unless otherwise stated.

Significant intercompany transactions, other than those

disclosed elsewhere in the notes to the profit and loss statement

are as follows:


2006 2005

$ $

Rendering of services (2,434,957) -

Secondment fees 241,800 449,800

Marketing and administration

Support fees 604,510 -

101

102

2006 2005

$ $

6. Cash and bank balances

Cash at bank 180,133 50,531

Pledged fixed deposits 20,113 20,000

200,246 70,531

Cash and cash equivalents comprise cash held by the company. The carrying amounts of these assets approximate their fair

values.

Fixed deposits bear interest at an average rate of 0.80% (2005 : 0.56%) per annum and are for a tenor of approximately 365

days (2005 : 365 days). The fixed deposits are pledged to a bank for the issuance of bank guarantee.

2006 2005

$ $

7. Trade Receivables

Outside parties 204,798 675,944

Less allowance for doubtful debts (77,027) -

127,771 675,944

Holding company (Note 5) 616,935 -

744,706 675,944

8. Other Receivables and Prepayments

Staff advances 36,974 -

Deposits 6,827 5,527

Prepayments 2,150 3,492

Other receivables 2,810 8,363

48,761 17,382



103

9. Equipment

$

Cost:

At April 1, 2004 -

Additions 12,257

At April 1, 2005 12,257

Additions 22,215

At March 31, 2006 34,472

Accumulated depreciation:

At April 1, 2004 -

Depreciation charge for the year 12,257

At April 1, 2005 12,257

Depreciation charge for the year 8,998

At March 31, 2006 21,255

Carrying amount:

At March 31, 2006 13,217

At March 31, 2005 -

10. Other Payables

2006 2005

$ $

Holding company (Note 5) 604,509 207,099

Other payables 87,683 82,440

692,192 289,539

11. Issued Capital

2006 2005 2006 2005

Number of ordinary

Shares of $10 each $ $

Authorised 10,000 10,000 100,000 100,000

Issued and paid up:

At beginning and at end of year 5,000 5,000 50,000 50,000

12. Revenue

2006 2005

$ $

Rendering of services 3,798,920 1,737,222


104

NOTES TO FINANCIAL STATEMENTS MARCH 31, 2006 (contd.)2006 2005

$ $

13. Other Operating Expenses

Staff costs 2,039,105 1,371,354

Marketing and administration support fees (Note 5) 604,510 -

Others 694,388 353,526

3,338,003 1,724,880

14. (Loss) Profit Before Income Tax

(Loss) Profit before income tax has been arrived at after charging (crediting):

Directors' fees 2,000 2,000

Staff costs 2,039,105 1,371,354

Cost of defined contribution plans included in staff costs 41,774 14,276

Allowance for doubtful debts 77,027 -

Interest income from outside parties (223) -

Foreign exchange adjustment gain (965) (2,871)

Depreciation of equipment 8,998 12,257

15. Income Tax

The income tax (benefit) expense varied from the amount of income tax

(benefit) expense determined by applying the Singapore income tax rate

of 20% (2005 : 20%) to (loss) profit before income tax as a result

of the following differences:

Income tax (benefit) expense statutory rate (31,916) 2,468

Deferred tax asset not recognised 31,916 -

Exempt income - (2,468)

Total income tax - -

The company has tax loss carry forwards available for offsetting

against future taxable income as follows:

Amount at beginning of year - -

Amount in current year 159,580 -

Amount at end of year 159,580 -

Deferred tax benefit on above not recorded 31,916 -

No deferred tax assets has been recognised in respect of the

above due to the unpredictability of future profit streams.

16. Contingent Liabilities

Bank guarantees (secured) 139,140 169,090


105

Date : 3 April 2006

To : Tech Mahindra (Singapore) Pte. Ltd.

From : Deloitte & Touche Singapore

Subject : Accounts of Tech Mahindra (Singapore) Pte Limited for the Year Ended

March 31, 2006 denominated in Indian Rupees.

Dear Sirs,

Please find attached the Balance Sheet, Profit and Loss Statement, Statement of Changes in Equity, Cash Flow Statement and notes to

accounts of Tech Mahindra (Singapore) Pte. Limited, signed for identification purposes only in respect of the above financial year end.

All balances (including prior year balances) are translated for convenience into Indian Rupees (Rs) at the exchange rate of Rs. 27.59 =

SGD 1 which is the average of the telegraphic transfer buying and selling rates quoted by the Mumbai Branch of State Bank of India on

March 31, 2006.

Kind regards,

DELOITTE & TOUCHE

MEMO

106

BALANCE SHEET

Note 2006 2005

$ Rs. $ Rs.

ASSETS

Current assets:

Cash and cash equivalents 1 200,246 5,524,787 70,531 1,945,950

Trade receivables 2 744,706 20,546,438 675,944 18,649,295

Other receivables and

prepayments 3 48,761 1,345,316 17,382 479,570

Total current assets 993,713 27,416,541 763,857 21,074,815

Non-current asset:

Equipment 4 13,217 364,657 - -

Total assets 1.006.930 27,781,198 763.857 21.074.815

LIABILITIES AND EQUITY

Current liability:

Other payables 5 692,192 19,097,577 289,539 7,988,381

Capital and reserves:

Issued capital 6 50,000 1,379,500 50,000 1,379,500

Accumulated profits 264,738 7,304,121 424,318 11,706,934

Total equity 314,738 8,683,621 474,318 13,086,434

Total liabilities and equity 1,006,930 27,781,198 763,857 21,074,815




107

Note 2006 2005

$ Rs. $ Rs.

Revenue 7 3,798,920 104,812,203 1,737,222 47,929,955

Cost of sales (620,722) (17,125,720) - -

Gross profit 3,178,198 87,686,483 1,737,222 47,929,955

Other operating expenses 8 (3,338,003) (92,095,503) (1,724,880) (47,589,439)

Other income 225 6,208 - -

(Loss) Profit before income tax 9 (159,580) (4,402,812) 12,342 340,516

Income tax expense 10 - - - -

(Loss) Profit after income tax (159,580) (4,402,812) 12,342 340,516


STATEMENT OF CHANGES IN EQUITY

Issued Accumulated TotalCapital Profits

$ Rs. $ Rs. $ Rs.

Balance at April 1, 2004 50,000 1,379,500 411,976 11,366,417 461,976 12,745,917

Net profit for the year - - 12,342 340,516 12,342 340,516

Balance at March 31, 2005 50,000 1,379,500 424,318 11,706,933 474,318 13,086,433

Net loss for the year - - (159,580) (4,402,812) (159,580) (4,402,812)

Balance at March 31, 1006 50,000 1,379,500 264,738 7,304,121 314,738 8,683,621


Year ended March 31, 2006

PROFIT AND LOSS STATEMENT

108


2006 2005

$ Rs. $ Rs.

Cash flows from operating activities :

(Loss) Profit before income tax (159,580) (4,402,812) 12,342 340,516

Adjustment for :

Interest income (223) (6,152) - -

Allowance for doubtful debts 77,027 2,125,175 - -

Depreciation expense 8,998 248,255 12,257 338,171

Operating profit before working

capital changes (73,778) (2,035,534) 24,599 678,687

Trade receivables (145,789) (4,022,319) (337,373) (9,308,121)

Other receivables and prepayments (31,269) (862,712) 65,722 1,813,270

Other payables 402,653 11,109,196 251,512 6,939,216

Cash generated from operations 151,817 4,188,631 4,460 123,052

Interest received 113 3,118 - -

Income tax paid - - (28) (773)

Net cash from operating activities 151,930 4,191,749 4,432 122,279

Cash flows used in investing activities :

Increase in pledged fixed deposits (113) (3,118) (20,000) (551,800)

Purchase of equipment (22,215) (612,912) (12,257) (338,171)

Net cash used in investing activities (22,328) (616,030) (32,257) (889,971)

Net increase (decrease) in cash and

cash equivalents 129,602 3,575,719 (27,825) (767,692)

Cash and cash equivalents

at beginning of year 50,531 1,394,150 78,356 2,161,842

Cash and cash equivalents at end

of year (Note 1) 180,133 4,969,869 50,531 1,394,150

Year ended March 31, 2006CASH FLOW STATEMENT


109

1. CASH AND BANK BALANCES

2006 2005

$ Rs. $ Rs.

Cash at bank 180,133 4,969,869 50,531 1,394,150

Pledged fixed deposits 20,113 554,918 20,000 551,800

200,246 5,524,787 70,531 1,945,950

Cash and cash equivalents comprise cash held by the company. The carrying amounts of these assets approximate their fair values.

Fixed deposits bear interest at an average rate of 0.8% (2005 : 0.56%) per annum and are for a tenor of approximately 365 days

(2005 : 365 days). The fixed deposits are pledged to a bank for the issuance of a bank guarantee.

2. TRADE RECEIVABLES

2006 2005

$ Rs. $ Rs.

Outside parties 204,798 5,650,376 675,944 18,649,295

Less allowance for doubtful debts (77,027) (2,125,175) - -

127,771 3,525,201 675,944 18,649,295

Holding company 616,935 17,021,237 - -

744,706 20,546,438 675,944 18,649,295

3. OTHER RECEIVABLES AND PREPAYMENTS

2006 2005

$ Rs. $ Rs.

Staff advances 36,974 1,020,112 - -

Deposits 6,827 188,357 5,527 152,491

Prepayments 2,150 59,319 3,492 96,344

Other receivables 2,810 77,528 8,363 230,735

48,761 1,345,316 17,382 479,570

4. EQUIPMENT

2006

$ Rs.

Cost :

At April 1, 2004 - -

Additions 12,257 338,171

At April 1, 2005 12,257 338,171

Additions 22,215 612,912

At April 31, 2006 34,472 951,083

NOTES TO FINANCIAL STATEMENTS

110

2006

$ Rs.

Accumulated depreciation : - -

At April 1, 2004 12,257 338,171

Depreciation charge for the year 12,257 338,171

At April 1, 2005 8,998 248,255

Depreciation charge for the year 21,255 586,426

At March 31, 2006

Carrying amount :

At March 31, 2006 13,217 364,657

At March 31, 2005 - -

5. OTHER PAYABLES

2006 2005

$ Rs. $ Rs.

Holding company 604,509 16,678,403 207,099 5,713,861

Other payables 87,683 2,419,174 82,440 2,274,520

692,192 19,097,577 289,539 7,988,381

6. ISSUED CAPITAL

2006 2005 2006 2005

Number of ordinary $ Rs. $ Rs.shares of $10 each

Authorised 10,000 10,000 1,00,000 2,759,000 1,00,000 2,759,000

Issued and paid :

At beginning and end of year 5,000 5,000 50,000 1,379,500 50,000 1,379,500

7. REVENUE

2006 2005

$ Rs. $ Rs.

Rendering of services 3,798,920 1,04,812,203 1,737,222 47,929,955

8. OTHER OPERATING EXPENSES

2006 2005

$ Rs. $ Rs.

Staff costs 2,039,105 56,258,907 1,371,354 37,835,657

Marketing & administration support fees 604,510 16,678,431 - -

Others 694,388 19,158,165 353,526 9,753,782

3,338,003 92,095,503 1,724,880 47,589,439

4.EQUIPMENT (Contd.)

NOTES TO FINANCIAL STATEMENTS (contd.)


111

9. (LOSS) PROFIT BEFORE INCOME TAX

2006 2005

$ Rs. $ Rs.

Directors' fees 2,000 55,180 2,000 55,180

Staff costs 2,039,105 56,258,907 1,371,354 37,835,657

Cost of defined contribution

plans included in staff costs 41,774 1,152,545 14,276 393,875

Allowance for doubtful debts 77,027 2,125,175 - -

Foreign exchange adjustment gain (965) (26,624) (2,871) (79,211)

Interest income from outside parties (223) (6,152) - -

Depreciation of equipment 8,998 248,255 12,257 338,171

10. INCOME TAX EXPENSE

2006 2005

$ Rs. $ Rs.

Current - - - -

The income tax (benefit) expense varied from the amount of income tax (benefit) expense determined by applying the Singapore

income tax rate of 20% (2005 : 20%) to (loss) profit before income tax as a result of the following differences :

2006 2005

$ Rs. $ Rs.

Income tax (benefit) expense

statutory rate (31,916) (880,562) 2,468 68,092

Deferred tax asset not recognised 31,916 880,562 - -

Exempt income - - (2,468) (68,092)

Total income tax - - - -

The company has tax loss caryforwards available for offsetting against future taxable income as follows :

2006 2005

$ Rs. $ Rs.

Amount at beginning of year - - - -

Amount in current year 159,580 4,402,812 - -

Amount at end of year 159,580 4,402,812 - -

Deferred tax benefit on above not recorded 31,916 880,562 - -

No deferred tax assets has been recognised in respect of the above due to the unpredictability of future profit streams.

NOTES TO FINANCIAL STATEMENTS (contd.)

112

Tech Mahindra (Thailand) Limited(FORMERLY MBT (THAILAND) COMPANY LIMITED)

Board of Directors

1. Mr. Vineet Nayyar2. Mr. C P Gurnani3. Mr. Sonjoy Anand4. Mr. Munish Kumar Managing Director

Registered Office

23rd Floor, M.Thai Towers87, Wireless Road, Bangkok Thailand

Bankers

HSBC Bank

Auditors

Audit Plus Limited, Thailand

Annual Report 2005 - 2006 TECH MAHINDRA (THAILAND) LTD.

113

CONTENTS PAGE



Balance Sheet 116

Statement of Income 117

Statement of Changes in Equity 117


114

Your Directors present their Report together with the audited accounts of your Company for the period ended March 31, 2006.


The Company started its operations during the year, therefore no income was recorded for the year. The Company continues to invest

in strengthening its marketing infrastructure in Thailand which is identified as future growth area.

CHANGE OF NAME

During the year, the Company's name was changed from MBT (Thailand) Co. Limited to Tech Mahindra (Thailand) Limited. This was

done in line with the change of name of the Parent Company, Tech Mahindra Limited.


The Company believes that there is good potential for growth in Thailand and the investments will begin to bear fruit in the near future.

ACKNOWLEDGEMENTS

Your Directors gratefully acknowledge the contributions made by the employees towards the success of the Company. Your Directors

are also thankful for the co-operation and assistance received from its customers, suppliers, bankers, State and Federal Government

Authorities and the shareholder.

Munish Kumar Managing Director


FINANCIAL RESULTS

For the period ended March 31 2006 2006

Thai Baht INR

Income NIL NIL

Profit/(Loss) before tax (3,397,196) (3,906,775)

Profit/(Loss) after tax (3,397,196) (3,906,775)

April 6, 2006


115

I have audited the balance sheet of Tech Mahindra (Thailand) Co., Ltd. (Formerly named “MBT(Thailand) Co., Ltd.”) as at 31 March

2006, the related statements of income and changes in shareholders’ equity for the periods from 26 August 2005 to 31 March 2006.

These financial statements are the responsibility of the Company’s management as to their correctness and completeness of

presentation. My responsibility is to express an opinion on these financial statements based on my audit.

I conducted my audit in accordance with generally accepted auditing standards. These standards require that I plan and perform the



assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial

statement presentation. I believe that my audit provides a reasonable basis for my opinion.

In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Tech Mahindra

(Thailand) Co., Ltd. (Formerly named “MBT(Thailand) Co., Ltd.”) as at 31 March 2006, and the result of its operations for the periods

from 26 August 2005 to 31 March 2006 in conformity with generally accepted accounting principles.

Without qualifying my opinion, I draw attention to note 5 to the financial statements. As at 31 march 2006, the company has capital

deficiency of baht 397,196 (Indian Rupee 456,775). However, management of the company believe that it is appropriate to adopt the

going concern basis in the preparation of financial statements as in year 2006 the company had not yet started commercial

operations. In addition, the major shareholders of the company have given a letter of undertaking to provide adequate financial

support to the company to enable it to continue its operations during the next fiscal year. As these financial statements have been

prepared on a going concern basis, they do not include any adjustments relating to the recoverability and classification of liabilities

that might be necessary should the company not be able to continue as a going concern.

MS. SULEEPORN TRIYAPRASERTPORN

Certified Public Accountant Registration No .5236

AUDIT PLUS LIMITED

Bangkok

6 April 2006

REPORT OF THE INDEPENDENT AUDITOR

To The Shareholders of Tech Mahindra (Thailand), Ltd.

(Formerly named “MBT (Thailand) Co., Ltd.”)

116

(Exchange rate

1 Baht = 1.15 INR)

Note Baht Indian Rupee

ASSETS

CURRENT ASSETS

Deposit at financial institutions 2,425,922 2,789,810

Other current assets 28,392 32,651

TOTAL CURRENT ASSETS 2,454,314 2,822,461

TOTAL ASSETS 2,454,314 2,822,461

LIABILITIES AND CAPITAL DEFICENCY

CURRENT LIABILITIES

Amount due to related companies 4 2,538,590 2,919,378

Accrued expenses 118,700 136,505

Other current liabilities 194,220 223,353

TOTAL CURRENT LIABILITIES 2,851,510 3,279,236

TOTAL LIABILITIES 2,851,510 3,279,236

LIABILITIES AND CAPITAL DEFICIENCY

CAPITAL DEFICIENCY

Share capital - common share at Baht 100 par value

- Authorized 50,000 shares 5,000,000 5,750,000

- Issued and 60 percent paid up 3,000,000 3,450,000

Net loss for the period (3,397,196) (3,906,775)

CAPITAL DEFICIENCY (397,196) (456,775)

LIABILITIES NET OF CAPITAL DEFICIENCY 2,454,314 2,822,461


These financial statements are approved at the general shareholders' meeting of Tech Mahindra (Thailand) Limited

dated on June 21, 2006

Munish Kumar

Managing Director

The notes to the financial statements form an integral part of these financial statements.


117

Note Baht Indian Rupee

EXPENSES

Administrative expenses 3,397,196 3,906,775

TOTAL EXPENSES 3,397,196 3,906,775

NET LOSS FOR THE PERIOD (3,397,196) (3,906,775)

BASIC LOSS PER SHARE

Net loss (67.94) (78.13)

(Exchange rate

1 Baht = 1.15 INR)

LIABILITIES AND CAPITAL DEFICIENCY (Exchange rate

1 Baht = 1.15 INR)

Paid-up Net loss Total Paid-up Net loss Total

share capital for the period share capital for the period

Balance as at

26 August 2005 3,000,000 - 3,000,000 3,450,000 - 3,450,000

Net loss for

the period - (3,397,196) (3,397,196) - (3,906,775) (3,906,775)

Balance as at

31 March 2006 3,000,000 (3,397,196) (397,196) 3,450,000 (3,906,775) (456,775)

Munish Kumar

Managing Director

The notes to the financial statements form an integral part of these financial statements.

STATEMENT OF INCOME FOR THE PERIODS FROM AUGUST 26, 2005

TO MARCH 31, 2006

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE PERIODS FROM

AUGUST 26, 2005 TO MARCH 31, 2006

Baht Indian Rupee

118

NOTES TO THE FINANCIAL STATEMENTS AS AT MARCH 31 2006

1 GENERAL INFORMATION

Tech Mahindra (Thailand) Co., Ltd. (Formerly named "MBT(Thailand) Co., Ltd.") was registered as a limited company under the

Thai Civil and Commercial Code on 26 August 2005. The Company is engaged in providing IT services and development for rd computer software. The address of the registered office is 87 M Thai Tower , 23 Floor, All Seasons Place, Wireless Road,

Lumpini, Phatumwan, Bangkok.

The Company's registered the change of its name from "MBT(Thailand) Co., Ltd." to "Tech Mahindra (Thailand) Co., Ltd." on 21

March 2006.

The information about the Company's employees for the periods from 26 August 2005 to 31 March 2006 are as follows: For the periods

26 Aug 05 to 31 Mar 06

Average number of employees (Persons) 5

Employee expenses (Million Baht) 1.87

Employee expenses (Million Indian Rupee) 2.15

2. BASIS OF FINANCIAL STATEMENT PREPARATION

The accompanying financial statements are prepared in accordance with the generally accepted accounting principles

issued under the Accounting Act (B.E. 2543), being those Thai Accounting Standards issued under the Accounting

Profession Act B.E. 2547.

3. SIGNIFICANT ACCOUNTING POLICIES

Expense recognition

Expenses are recognized on an accrual basis.

Foreign currency translation

Foreign currency amounts are translated for convenience into Indian Rupees at the exchange rate of Baht1 equal to INR 1.15

which is the market rate as on 31st March 2006

Basic loss per share

The basic loss per share is determined by dividing the net loss for the period by the weighted average number of common

shares outstanding during the period.

Use of accounting estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to

make estimates and assumptions that affect the reported amounts of income, expenses, assets, liabilities and disclosure of

contingent assets and liabilities. Actual results may differ from those estimates.

4. RELATED PARTY TRANSACTIONS

The Company has transactions with its related parties. These companies are related through common shareholding

and/or directorship. Thus the financial statements reflect the effects of these transactions on the basis agreed upon

between the Company and related companies which basis might be different from the transactions with unrelated

companies.

The significant account balances with related parties as at 31 March 2006 are as follows:

(Exchange rate 1 Baht = 1.15 INR)

Baht Indian Rupee

Amount due to related companies

Tech Mahindra Limited 2,538,590 2,919,378

5. THE COMPANY AS A GOING CONCERN

As at 31 March 2006, the Company has capital deficiency of Baht 397,196 (Indian Rupee 456,775). However, management

of the Company believe that it is appropriate to adopt the going concern basis in the preparation of financial statements as in

year 2006 the company had not yet started commercial operations. In addition, the major shareholders of the Company have

given a letter of undertaking to provide adequate financial support to the Company to enable it to continue its operations

during the next fiscal year. As these financial statements have been prepared on a going concern basis, they do not include

any adjustments relating to the recoverability and classification of liabilities that might be necessary should the Company not

be able to continue as a going concern.

Munish Kumar

Managing Director


119

Tech Mahindra Foundation

Board of Directors

1. Mr. Milind Kulkarni2. Mr. Atanu Sarkar 3. Mr. Vikrant Gandhe

Registered Office

Oberoi Gardens Estate, ChandivaliOff Saki Vihar RoadAndheri (E)Mumbai 400 072, India.

Bankers

Industrial Development Bank of India Ltd.

Auditors

B. K. Khare & Co., Chartered Accountants, Mumbai

TECH MAHINDRA FOUNDATION

120

CONTENTS PAGE


Report of The Auditors 122

Financial Statements 123

Annual Report 2005 - 2006 TECH MAHINDRA FOUNDATION

121

DIRECTORS' REPORTYour Directors present their First Annual Report of your Company for the period ended 31st March 2006.

INCORPORATION OF THE COMPANY

The Board is pleased to announce that the Company was formed on March 22, 2006 as a non-profit making organization, a

`Section 25' Company in terms of the Companies Act, 1956.

As per the requirements of the Companies Act, 1956, the license for the organization was received from the Regional Director,

State of Maharashtra on 20th March 2006 and the company was formed.

The Company was thus incorporated on March 22, 2006, as a 100% subsidiary of Tech Mahindra Limited.

RATIONALE FOR INCORPORATION

The Parent Company, Tech Mahindra Limited, has always played a vital role in the area of Corporate Social Responsibility. Keeping

up with this, it was thought appropriate to incorporate such a company, which could concentrate on rendering assistance to the

needy and under privileged people in the society.

FUTURE OBJECTIVES

Food, Shelter, Clothing and Education are the basic necessities for every person and therefore your company proposes to assist

needy students and children with books, equipments, freeship / scholarship, educate them in public health care, sanitation,

cleanliness and other related objects.

The Company plans assistance to indigent men, women and children; assistance for appropriate literacy and vocation training

programs; provide shelter, education and medical care.

DIRECTORS

The first Directors of your Company are

1. Mr. Milind Kulkarni

2. Mr. Atanu Sarkar

3. Mr. Vikrant Gandhe

Pursuant to the provisions of the Articles of Association of the Company, all the Directors retire by rotation and being eligible offer

themselves for re-appointment.

DIRECTORS RESPONSIBILITY STATEMENT

Pursuant to section 217(2AA) of the Companies Act, 1956, your Directors, based on the representation received from the

Operating Management, and after due enquiry, confirm that:

i. in the preparation of the annual accounts, the applicable accounting standards have been followed;

ii. they have, in the selection of the accounting policies, consulted the Statutory Auditors and these have been applied

consistently and reasonable and prudent judgments and estimates have been made so as to give a true and fair view of the

state of affairs of the Company as at 31st March 2006 and of the loss of the Company for the period ended on that date;

iii. proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the

provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud

and other irregularities;

iv. the annual accounts have been prepared on a going concern basis.

AUDITORS:

The Auditors, B.K.Khare & Co.,Chartered Accountants, retire at the ensuing Annual General Meeting and have confirmed their

eligibility and willingness to accept office, if re-appointed.

PARTICULARS OF EMPLOYEES:

The company did not have any employees during the period ended March 31, 2006.

For the period ended March 31 2006

Income 30,308

Profit/(Loss) before tax (34,942)

Profit/(Loss) after tax (34,942)

FINANCIAL RESULTS

122

REPORT OF THE AUDITORS

To the Members of Tech Mahindra Foundation

We have audited the attached Balance Sheet of Tech Mahindra Foundation, as at 31st March 2006,and also the Income and

Expenditure Account for the year ended on that date annexed thereto. These financial statements are the responsibility of the

Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require that we plan and

perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit

includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also

includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall

financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

1. As the Company is licensed under Section 25 of the Companies Act, 1956,the Companies (Auditor's Report) Order, 2003,

issued by the Central Government of India, in terms of Section 227(4A) of the Act does not apply to it, as per paragraph

1(2)(iii) of the said Order.

2. Further to our comments referred to in the paragraph 1 above, we report that:

(a) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for

the purposes of our audit.

(b) In our opinion, proper books of account as required by the law have been kept by the Company so far, as appears from

our examination of the books.

(c) The Balance Sheet and Income and Expenditure Account dealt by the report are in agreement with the books of account.

(d) In our opinion, the attached Balance Sheet and Income and Expenditure Account dealt with by this report comply with

the Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act,1956

(e) On the basis of the written representations received from the Directors as on 31st March,2006 and taken on the record

by the Board of Directors, we report that none of the Directors is disqualified as on 31st March, 2006 from being appointed

as Director in terms of clause (g) of sub section (1) of Section 274 of the Companies Act,1956.

In our opinion, and to the best of our information and according to the explanations given to us, the said accounts read

together with the notes, give the information required by the Companies Act, 1956, in the manner so required and give a

true and fair view in conformity with the accounting principles generally accepted in India:

i) in the case of the Balance Sheet, of the state of affairs of the Company as on 31st March, 2006 and

ii) in the case of the Income and Expenditure Account of the deficit for the year ended on that date.

For B.K. Khare & Co.


R.D.Onkar

(Partner)

M.No.45716

Place : Pune

Dated: April 06,2006

ACKNOWLEDGEMENTS

The Board takes this as an opportunity to thank the promoters of the Company for their faith and patronage.

Pune, April 6, 2006


Milind Kulkarni

Chairman


123



Schedule March 31,2006 Rupees


Corpus Fund I 150,500,000

TOTAL 150,500,000

II. APPLICATION OF FUNDS :

CURRENT ASSETS, LOANS AND ADVANCES: II

Interest accrued (on bank deposit) 30,308

Cash and Bank Balances 150,495,000

150,525,308

Less : CURRENT LIABILITIES AND PROVISIONS:

Liabilities III 60,250

60,250

Net Current Assets 150,465,058

Deficit in Income and Exenditure Account 34,942

TOTAL 150,500,000

SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS VI


For B K Khare & Co. For Tech Mahindra Foundation


R.D. Onkar Mr. Milind Kulkarni Mr. Atanu Sarkar

(Partner) Chairman Director

M No . 45716

Pune, April 06, 2006 Pune , Dated : April 06, 2006

124

INCOME & EXPENDITURE ACCOUNT FOR THE YEAR ENDED MARCH 31, 2006

Schedule March 31,2006

Rupees

INCOME IV 30,308

TOTAL 30,308

EXPENDITURE :

Operating and Other Expenses V 65,250

TOTAL 65,250

Excess of expenditure over income 34,942

TOTAL 30,308

SIGNIFICANT ACCOUNTING POLICIES VI




R.D. Onkar Mr. Milind Kulkarni Mr. Atanu Sarkar


M No . 45716

Pune, April 06, 2006 Pune , Dated : April 06, 2006


125


As at

March 31, 2006

Rupees Rupees

Schedule I

Corpus Funds

Share Capital

Authorised :

50,000 Equity Shares of Rs. 10/- each fully paid-up 500,000

Issued, Subscribed & Paid up :

50,000 Equity Shares of Rs. 10/- each fully paid-up 500,000

Specific Donations

As per last Balance Sheet -

Add : Received during the period/year 150,000,000

150,500,000

TOTAL 150,500,000

SCHEDULES FORMING PART OF THE BALANCE SHEET AS AT MARCH 31, 2006

As at

March 31, 2006

Rupees Rupees

Schedule II


(a) Cash and Bank Balances :

Balance with Scheduled banks : (i) In Current accounts 2,995,000

(ii) In Fixed Deposit accounts 147,500,000

150,495,000

(b) Loans and Advances :


value to be received........considered good 30,308

........considered doubtful -

30,308

Less : Provision -

30,308

30,308

TOTAL 150,525,308

As at

March 31, 2006

Rupees Rupees

Schedule III


Sundry Creditors *

Total outstanding dues to Small Scale Industrial Undertakings -

Total outstanding dues of Creditors other than Small Scale

Industrial Undertakings * 60,250

TOTAL 60,250

126

SCHEDULES FORMING PART OF THE INCOME AND EXPENDITURE ACCOUNT

March 31,2006

Rupees Rupees

Schedule IV

INCOME

Interest on : 30,308

Deposits with banks

(Tax deducted at source Rs.6,802 )

TOTAL 30,308

March 31,2006

Rupees Rupees

Schedule V

OPERATING AND OTHER EXPENSES

Professional fees 45,250

Donation 5,000

Audit Fees 15,000

TOTAL 65,250

Schedule VI

SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006



The accounts have been prepared to comply in all material aspects with applicable accounting principles in India, the

Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI) and the relevant provisions of the

Companies Act, 1956.

(b) Revenue recognition:

Interest income is recognized on time proportion basis.

(c) Donations :

Donations received with a specific direction from the donors that they shall form part of the corpus /specific funds have

been accounted for accordingly.

2. Pre-operative expenses have been charged off to the income & expenditure account fully in the year of incurrence of

expences

3. Previous year's figures have not been presented being the first year of operation.




R.D.Onkar

M No: 45716

Pune, Dated : April 06, 2006 Pune, Dated : April 06, 2006

Mr. Milind Kulkarni Mr. Atanu Sarkar



127


BALANCE SHEET ABSTRACT AND THE COMPANY'S GENERAL BUSINESS PROFILE :

I. Registration Details

Registration Number 11-171544N State Code 11

Balance Sheet date 31 03 2006

Date Month Year

II. Capital raised during the year (Amount in Rs. Thousands)

Public Issue Rights Issue

Nil Nil

Bonus Issue Private Placements

Nil 500

III. Position of Mobilisation and deployment of funds (Amounts in Rs. Thousands)

Total Liabilities (including shareholders' funds) Total Assets

150,500 150,500

Paid-up Capital Reserves and Surplus

500 NIL

Secured Loans Unsecured Loans

NIL NIL

Net Fixed Assets Investments

NIL NIL

Net Current Assets Deferred Tax Asset

150,465 NIL

Accumulated Losses

35

IV. Performance of Company (Amount in Rs. Thousand)-N.A.

Turnover (Sales and Other Income) Total Expenditure

Profit/(Loss) Before Tax Profit/(Loss) After Tax

Earning per Share in Rs.

(Refer Note 18 above) Dividend Rate %

NA NIL

V. Generic Names of Three Principal Products/Service of Company (as per monetary terms)

Item Code ( ITC Code)-N.A .

Product Descriptio- N.A .


For Tech Mahindra Foundation

Mr. Milind Kulkarni Mr. Atanu Sarkar

Chairman Director Place: Pune

Dated :April 6, 2006

128

Tech Mahindra (R&D Services) Limited(Formerly Axes Technologies (India) Private Limited)

Board of Directors

1. Mr. Vineet Nayyar, Chairman2. Mr. Paul Pandian3. Mr. C P Gurnani4. Mr. Sanjay Kalra5. Mr. Sunil Joshi

Registered Office

9/7, Hosur RoadBangalore 560 029, India

Bankers

State Bank of India HDFC Bank

Auditors

Narayanan, Patil & Ramesh Chartered Accountants, Bangalore


129

CONTENTS PAGE


Auditors' Report 134

Financial Statements 137

Balance Sheet Abstract 154

Statement Under Section 212 155

130

DIRECTORS' REPORT

stYour Directors present their Eleventh Annual Report together with the audited Accounts of the Company for the year ended 31

March 2006.

FINANCIAL RESULTS (Rupees Mn)

For the year ended March 31, 2006 2005

Income 1,291.64 1,187.69

Depreciation 163.76 55.81

Profit Before Tax & Extra Ordinary items 141.37 140.53

Provision for Taxation 50.02 2.97

Provision for Deferred Taxes 19.61 4.38

Provision for Fringe Benefit Tax 3.65 -

Extra Ordinary Items (178.11) Nil

Profit/(Loss) after Tax (70.79) 133.18

APPROPRIATIONS

Transfer to General Reserve Nil 133.18

Proposed dividend ( Equity) Nil 83.49

Dividend Distribution tax Nil 10.91

Profit Carried forward to Balance Sheet 630.34 701.14

CHANGE OF NAME AND CONVERSION OF THE COMPANY FROM PRIVATE TO PUBLIC LIMITED:

In order to be identified with the parent Company, your Company's name was changed from Axes Technologies (India) Private Limited

to Tech Mahindra (R & D Services) Private Limited. Further the status of the Company was changed from Private Limited to Public

Limited. Subsequently the name of the Company was changed to Tech Mahindra (R&D Services) Limited.

INCREASE IN SHARE CAPITAL:

During the year under review, the Company issued shares in terms of the ESOP plan. Consequently the paid up share capital of the

Company has increased from Rs. 42.18 Mn to Rs. 46.03 Mn

DIVIDEND:

In order to further strengthen the financials of the Company, your Directors do not recommend any dividend for the year under review.

Despite difficult market conditions and increased competition, income for the year marginally grew up to Rs. 1,291.64 Mn as

compared to Rs. 1,187.69 Mn in the previous year, an increase of 9%. Net loss after tax for the year was Rs. 70.79 Mn compared to a

profit of Rs. 133.18 Mn in the previous year. The Profits have declined sharply on account of the extra ordinary items for contractual

payment to Alcatel and acquisition related expenses. Your Company remains committed to delivering shareholders' value through

increased business, control over cost and better profitability.

STATUS OF THE COMPANY AFTER ACQUISITION:

The Company became a subsidiary of Tech Mahindra Limited (Formerly Mahindra-British Telecom Limited). With the acquisition of

the Company, Tech Mahindra Limited now holds more than 99% of the paid up share capital of the Company.

Annual Report 2005 - 2006 TECH MAHINDRA ( R & D SERVICES ) LIMITED

131

HUMAN RESOURCE MANAGEMENT:

Recognizing the value of human resources as the Company’s growth potential, your company has been focusing on development and

management of human resources in the Company. The Company has put in place a scalable recruitment and human resource

management process, enabling it to attract and retain high caliber employees. Your Company added 274 employees during the year.

The Company recognizes the fact that to grow and compete in an extremely fierce competitive environment it needs to retain and

grow the best talent in the industry. Number of steps were taken during the year to further strengthen the HR Processes within the

Company.

FIXED DEPOSITS:

Your Company has not accepted any fixed deposits and, as such, no amount of principal or interest was outstanding as on the balance

sheet date.

FINANCE:

The Company continues to deploy its surplus liquidity primarily in debt oriented schemes of different reputed mutual funds. Such

investments are made on the twin objective of capital preservation and optimization of returns. A part of the temporary surplus funds

are also invested in liquid/short term schemes of mutual funds.

The Company keeps a close watch on the developments in forex market and obtains forward covers in respect of its receivables as and

when deemed necessary.

SUBSIDIARY COMPANIES :

The Company has its Subsidiaries in Singapore and USA. During the year under review, both the subsidiaries changed their names

From Axes Technologies Inc. to Tech Mahindra ( R & D Services) Inc. and Axes Technologies (Asia Pacific) Pte. Ltd. to Tech Mahindra

( R & D Services) Pte. Ltd.

CONSOLIDATED FINANCIAL STATEMENTS:

The consolidated Financial Statements of the Company and its subsidiaries are attached.

In accordance with Accounting Standard 21- Consolidated Financial statements, form part of this Report. The Consolidated accounts

have been prepared on the basis of audited financial statements received from the Subsidiary Companies as approved by their

respective Boards.

INTERNAL CONTROL SYSTEMS AND ADEQUACY:

Your Company has an adequate system of internal control commensurate with the size of the Company and the nature of its business

which ensures that transactions are recorded, authorized and reported correctly apart from safeguarding its assets against loss from

wastage, unauthorized use and disposition.

The internal control system is supplemented by well documented policies, guidelines and procedures. An extensive programme of

internal audit by a firm of chartered accountants and management review of the same is in place.

DIRECTORS :

Mr. Paul Pandian, Mr. S Udaya Kumar, Dr. M V Pitke and Mr. Jay Whitehurst resigned from the Board consequent to Tech Mahindra

Limited (formerly Mahindra-British Telecom Limited) acquiring majority stake in the Company. The Board was reconstituted with the

thappointment of Mr. Vineet Nayyar, Mr. Paul Pandian, Mr. C P Gurnani, Mr. Sunil Joshi and Mr. Sanjay Kalra as Additional Directors on 28

November 2005. They all hold office upto the completion of ensuing Annual General Meeting. Company has received notices from

shareholders in terms of Section 257 of the Companies Act, 1956 proposing their candidature for the office of Director along with the

required deposit. Your Directors commend their appointment.

DIRECTORS' REPORT (contd.)

132

AUDITORS:

The Auditors, Narayanan, Patil & Ramesh, Chartered Accountants, retire at the ensuing Annual General Meeting and have confirmed

their eligibility and willingness to accept office, if re-appointed.

CONSERVATION OF ENERGY, RESEARCH AND DEVELOPMENT, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE

EARNINGS AND OUTGO:

1.Conservation of Energy:

The operations of your Company are not energy-intensive. However, adequate measures have been taken to reduce energy

consumption by using energy-efficient computers and by the purchase of energy-efficient equipment with latest technologies. Your

company constantly evaluates new technologies and invests in them to make its infrastructure more energy efficient. Currently your

Company uses CFL fittings to reduce the power consumption of fluorescent tubes. Energy saving Air conditioners have been acquired

for effectiveness. As energy costs comprise a very small part of your company's total expenses, the financial impact of these measures

is not material.

2.Research & Development ( R&D):

Research and development of new services, designs, frameworks, process and methodologies continue to be of importance to the

Company. This allows your Company to increase quality, productivity and customer satisfaction through continuous innovation.

3. Foreign Exchange earnings and outgo:

Major portion of the income of the company is through exports, the earnings and outgo of foreign exchange is as under :

( Rupees Mn )

For the year ended March 31 2006 2005

Foreign Exchange Earnings 1,184.69 901.65

Dividend from Subsidiary 4.86 4.57

Foreign Exchange outgo:-

I) Revenue items 52.15 23.75

II) Capital Items 11.87 6.81

PARTICULARS OF EMPLOYEES:

As required under Section 217(2A) of the Companies Act, 1956, and the Rules made there under, a statement containing particulars of

stthe Company's employees who were in receipt of remuneration of not less than Rs. 2,400,000 during the year ended 31 March 2006,

or of not less than Rs. 200,000 per month, if, employed for part of the year, is given in the Annexure to this Report.

The Department of Company Affairs, has amended the Companies (Particulars of Employees) Rules, 1975 to the effect that particulars

of employees of companies engaged in Information Technology sector posted and working outside India not being directors or their

relatives, drawing more than Rs. 2,400,000 per financial year or Rs. 200,000 per month, as the case may be, need not be included in

the statement but, such particulars shall be furnished to the Registrar of Companies. Accordingly, the statement included in this report

does not contain the particulars of employees who are posted and working outside India.



133

DIRECTORS' RESPONSIBILITY STATEMENT:

Pursuant to section 217(2AA) of the Companies Act, 1956, your Directors, based on the representation received from the Operating

Management, and after due enquiry, confirm that:

I. in the preparation of the annual accounts, the applicable accounting standards have been followed;

II. they have, in the selection of the accounting policies, consulted the Statutory Auditors and these have been applied

consistently and reasonable and prudent judgments and estimates have been made so as to give a true and fair view of

stthe state of affairs of the Company as at 31 March 2006 and of the loss of the Company for the year ended on that date;

III. proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the

provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting

fraud and other irregularities;

IV. the annual accounts have been prepared on a going concern basis.

ACKNOWLEDGEMENTS:

The Directors thank Alcatel, vendors, investors, bankers for their continued support during the year. Your directors place on record

their sincere appreciation of the contribution made by the employees at all levels, who through their competence, hard work,

solidarity, co-operation and support, have enabled the company to achieve consistent growth.

Your directors thank the Government of India, particularly the Department of Electronics, the Customs and Excise departments, the

Software Technology parks, Bangalore, Chennai, the Ministry of Commerce, the Ministry of Finance, the Reserve Bank of India, VSNL,

the Department of Telecommunications, the State Governments and other Government agencies for their support and look forward to

their continued support in the future.


Bangalore, May 2, 2006

Vineet Nayyar

Chairman


134

AUDITORS' REPORT

To the members of TECH MAHINDRA (R & D SERVICES) LIMITED (formerly Axes Technologies (India) Private Limited)

1. We have audited the attached Balance Sheet of TECH MAHINDRA (R & D SERVICES) LIMITED, as at 31st March 2006 and

also the Profit & Loss Account and the Cash Flow Statement for the year ended on that date annexed thereto. These financial

statements are the responsibility of the company's management. Our responsibility is to express an opinion on these Financial

Statements based on our audit.

2. We conducted our audit in accordance with Auditing Standards generally accepted in India. Those Standards require that we

plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material

misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Financial

Statements. An audit also includes assessing the accounting principles used and significant estimates made by management,

as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our

opinion.

3. As required by the Companies (Auditors Report) Order, 2003, issued by the Central Government of India, in terms of Sub-ction

(4A) of Section 227 of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in

paragraphs 4 and 5 of the said order.

4. Further to our comments in the Annexure referred to in Paragraph 3 above, we report that:

a) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the

purpose of our audit.

b) In our opinion, proper books of accounts as required by Law have been kept by the Company so far as appears from

our examination of such books.

c) The Balance Sheet, Profit & Loss Account and Cash Flow Statement dealt with by this report are in agreement with the

books of account.

d) In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with this report comply with the

Accounting Standards referred to in Sub-section (3C) of Section 211 of the Companies Act, 1956.

e) On the basis of written representations received from the Directors and taken on record by the Board of Directors, we report

that none of the Directors of the company are disqualified as on 31.03.2006 from being appointed as Directors of the

company under clause (g) of sub section (1) of Section 274 of Companies Act, 1956.

f) In our opinion and to the best of our information and according to the explanations given to us, the accounts together with

the notes thereon give the information required under the Companies Act, 1956 in the manner so required and give a true

and fair view in conformity with the Accounting Principles generally accepted in India:

i) In the case of Balance Sheet, of the state of affairs of the company as at 31st March 2006.

ii) In the case of Profit and Loss Account, of the Loss for the year ended on that date.

iii) In the case of Cash Flow Statement, of the cash flows for the year end ed on that date.

for Narayanan, Patil and Ramesh


Place : Bangalore, L R Narayanan

Date : April 26, 2006 Partner


135

ANNEXURE TO AUDITORS' REPORT

Annexure referred to in paragraph 3 of the Auditors' Report to the members of TECH MAHINDRA (R & D SERVICES) LIMITED for

stthe period ended 31 March 2006. We report that:

(i) (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of

Fixed Assets

(b) All the fixed assets have been physically verified by the management during the year and no material discrepancies

were noticed on such verification.

(c) During the year, the company has not disposed off any major part of Plant & Machinery that would affect the

Going Concern status of the Company.

(ii) (a) According to the information and explanations given to us the provision of Clause 4(ii) is not applicable, as the

company has no inventory.

(iii) (a) According to the information and explanations given to us, the company has neither granted nor taken any loans,

secured or unsecured, to or from any companies, firms or other parties covered in the register maintained under

section 301 of the Act. Hence provision of clause 4(iii) is not applicable.

(iv) In our opinion and according to the information and explanations given to us, there are adequate internal control

procedures commensurate with the size of the company and the nature of its business, with regard to purchase

of inventory, fixed assets and for the sale of goods to the extent applicable to the company. During the course of

audit, we have not observed any continuing failure to correct major weaknesses in internal controls.

(v) (a) According to the information and explanations given to us, we are of the opinion that the contracts or

arrangements that need to be entered into a register in pursuance of section 301 of the Companies Act, 1956

have been so entered.

(b) In our opinion and according to the information and explanations given to us, the transactions made in pursuance

of contracts or arrangements entered in the register maintained under Section 301 of the Companies Act, 1956

and exceeding the value of rupees five lakhs in respect of any party during the year have been made at prices

which are reasonable having regard to prevailing market prices at the relevant time.

(vi) According to the information and explanations given to us, the company has not accepted deposits from the

public and hence, the directives issued by the Reserve Bank of India and the provisions of Sections 58A and 58AA

or any other relevant provisions of the Act and the rules framed there under, are not applicable to the Company.

(vii) In our opinion, the company has an internal audit system commensurate with it's the size and nature of its

business.

(viii) According to the information and explanations given to us the provision of clause 4(viii) is not applicable.

(ix) (a) The company is regular in depositing with appropriate authorities undisputed statutory dues including Provident

Fund, Income Tax, Wealth Tax, Service Tax, Sales Tax, and any other statutory dues applicable to it.

(b) According to the information and explanations given to us, no undisputed amounts payable in respect of

Provident Fund, Income Tax, Sales Tax, Wealth Tax, Service Tax and other material statutory dues were in

arrears, as at 31.03.2006 for a period of more than six months from the date they became payable.

According to the information and explanations given to us, there are no dues of Income Tax, Sales Tax, Service

Tax and Wealth Tax which have not been deposited with appropriate authorities on account of any dispute

excepting the below mentioned.

Name of the Statute Nature of Dues Disputed Amount Period to which Forum where dispute

the amount related is pending

Income Tax Act Income Tax 5.51 Lacs AY 2003-04 Assessing Officer

136

(x) According to the information and explanations given to us the provision of clause 4(x) is not applicable.

(xi) In our opinion, and according to the information and explanations given to us, the Company does not have any

outstanding dues to any financial institution or banks during the year.

(xii) In our opinion, the company has not granted any loans and advances on the basis of security by way of pledge of

shares, debentures and other securities. Hence, maintenance of records is not applicable.

(xiii) In our opinion, the company is not a chit fund or nidhi mutual benefit fund / society and therefore, the provisions

of clause 4(xiii) of the Order are not applicable to the company.

(xiv) According to the information and explanations given to us, the company is not dealing in or trading in shares,

securities, debentures and other investments and accordingly, the provisions of clause 4(xiv) of the Order are not

applicable to the company.

(xv) In our opinion and according to the information and explanations given to us, the company has not given

guarantees for loans taken by others from banks accordingly, the provisions of clause 4(xv) of the Order is not

applicable to the company.

(xvi) In our opinion and according to the information and explanations given to us, the company has not taken any

term loans from banks and therefore, the provisions of clause 4(xvi) of the Order are not applicable to the

company.

(xvii) According to the information and explanations given to us and on an overall examination of the balance sheet of

the company, we report that no funds raised on short-term basis have been used for long-term investment.

(xviii) According to the information and explanations given to us, the Company has not made any preferential allotment

of shares during the year to parties and companies covered in the Register maintained under Section 301 of the

Act and therefore, the provisions of clause 4(xviii) of the Order are not applicable to the company.

(xix) According to the information and explanations given to us, the Company has not issued any debenture and

therefore, the provisions of clause 4(xix) of the Order are not applicable to the company.

(xx) According to the information and explanations given to us, the provisions of Clause 4(xx) of the Order are not

applicable to the company since the company has not raised any money through public issue of shares.

(xxi) According to the information and explanations given to us, no fraud on or by the company has been noticed or

reported during the course of our audit.

for Narayanan, Patil and Ramesh


Place : Bangalore, L R NarayananDate : April 26, 2006 Partner

ANNEXURE TO AUDITORS' REPORT (contd.)


137


For Narayanan, Patil & Ramesh For Tech Mahindra ( R & D Services)LimitedChartered Accountants

L R Narayanan Mr. Vineet Nayyar Mr. C.P.GurnaniPartner Director Director Membership No. 25588Bangalore Mrs. Sudha RaniDate : April 26, 2006 Company Secretary

SOURCES OF FUNDS :

SHAREHOLDER’S FUNDS :

Share Capital I 46,033,500 42,184,000

Share Application Money - 768,500

Reserves and Surplus II 943,067,570 977,768,497

Defered Tax Liability _ 19,614,933

TOTAL 989,101,070 1,040,335,930

APPLICATION OF FUNDS :

FIXED ASSEST : III

Gross Block 626,390,629 633,120,873

Less : Dpreciation 365,698,141 225,408,769

Net Block 260,692,488 407,712,104

Capital Work-In-Progress, including Advances 4,972,560 4,321,563

265,665,048 412,033,667

INVESTMENTS IV 385,518,566 321,874,725

CURRENT ASSETS, LOANS AND ADVANCES : V

Sundry Debtors 450,322,119 285,844,324

Cash And Bank Balances 75,183,954 27,813,645


559,985,359 344,819,192

Less : CURRENT LIABILITIES AND PROVISIONS :

Liabilities VI 164,260,719 9,141,595

Provisions VII 57,807,184 29,250,059

222,067,903 38,391,654

Net Current Assets 337,917,456 306,427,538

TOTAL 989,101,070 1,040,335,930



ScheduleAs at

March 31,2006Rupees

As atMarch 31,2005

Rupees

BALANCE SHEET

138

INCOME VIII 1,291,637,469 1,187,687,486

EXPENDITURE :

Personnel IX 451,317,600 335,546,204

Operating and Other Expenses X 535,191,718 655,800,030

Depreciation 163,754,942 55,810,934

TOTAL 1,150,264,260 1,047,157,168

PROFIT BEFORE TAXATION 141,373,209 140,530,318

Provision for Taxation

- Current tax 50,020,000 2,965,000

- Defered tax (19,614,933) 4,382,688

- Fringe benefit tax 3,650,000 -

PROFIT AFTER TAXATION 107,318,142 133,182,630

Acquisition related expenses (61,566,480) -

Contractual Compansation Payment (116,543,616) -

PROFIT FOR THE YEAR AFTER TAXATION (70,791,954) 133,182,630

Balance brought forward from previous Year/period 701,135,168 675,677,278

Balance available for appropriation 630,343,214 808,859,908

Interim Divident - 83,494,756

Divident Tax - 10,911,721

Tranfer to General Reserve - 13,318,263

Balance Carried to Balance Sheet TOTAL 630,343,214 701,135,168

Earning Per Share(Refer Note 10 of Notes to Accounts)

- Basic (7.93) 15.95

- Diluted (7.69) 14.58



Schedule March 31,2006Rupees

March 31,2005Rupees

PROFIT AND LOSS ACCOUNT FOR THE PERIOD ENDED





139

A Cash Flow From Operating Activities

Net Profit before taxation 141,373,209 140,530,318

Adjustments for :

Depreciation 163,754,942 55,810,934

Loss on sale of Fixed Assets (net) 1,012,079 (89,898)

Decrease in fair value of Long Term Investments 249,999 2,815,585

Acquisition related expenses (61,566,480) -

Contractual Compensation Payment (116,543,616) -

Dimunition in the value of investments 114,429 -

Exchange gain (net)

Dividend from Current Investments (14,909,064) (22,090,193)

Employee Compensation Expense on ESOP 36,091,027 100,632,473

Interest Income (2,124,137) (1,974,212)

(Profit) / Loss on Sale of Investments (31,833,639) -

(25,754,460) 135,104,689

Operating profit before working capital changes

115,618,749 275,635,007

Adjustments for :

Trade and other receivables (158,817,517) (70,867,426)

Trade and other payables 163,930,219 (8,313,123)

5,112,703 (79,180,549)

Cash generated from operations 120,731,452 196,454,459

Direct Taxes (37,902,311) (3,155,393)

Net cash from operating activities 82,829,141 193,299,066

B Cash flow from investing activities

Purchase of Fixed assets (18,720,450) (35,930,924)

Purchase of Investments (net) (64,008,269) (18,467,498)

Sale of Fixed Assets 322,046 475,351

Interest Received 2,124,136 1,974,212

Dividend / Profit on current investments received 46,742,704 22,090,193

Net cash from investing activities (33,539,833) (29,858,666)

C Cash flow from financing activities

Proceeds from issue of Shares 3,081,000 1,301,500

(including Share Premium)

Share Application Money -

Dividend (including Dividend Tax Paid) (5,000,000) (158,427,397)

Net cash from Financing activities (1,919,000) (157,125,897)

Net increase /(Decrease) in cash and cash

equivalents (A+B+C) 47,370,308 6,314,502

Cash and cash equivalent at the beginning

of the period 27,813,646 21,499,143

Cash and cash equipments at the end of the

Period 75,183,954 27,813,646

CASH FLOW FOR THE PERIOD ENDED

Particulars

March 31,2006Rupees

March 31,2005Rupees




Rupees

140

SCHEDULES FORMING PART OF THE BALANCE SHEET

As at As at

March 31, 2006 March 31,2005

Rupees Rupees

Schedule I

SHARE CAPITAL :

Authorised :

1,20,00,000 Equity Shares of Rs. 5/- each 60,000,000 60,000,000

60,000,000 60,000,000


92,06,700 Equity Shares of Rs. 5/- each(Previous

Year : 84,36,800 Equity Shares of Rs. 5/- each) 46,033,500 42,184,000

Paid-up :

92,06,700 Equity Shares of Rs. 5/- each(Previous

Year : 84,36,800 Equity Shares of Rs. 5/- each) 46,033,500 42,184,000

TOTAL 46,033,500 42,184,000

As at As atMarch 31,2006 March 31,2005

Rupees Rupees

Schedule IIRESERVES AND SURPLUS :

General Reserve :

As per Last Balance Sheet 60,834,856 47,516,593 Add : Transfer From Profit and Loss Account - 13,318,263

60,834,856 60,834,856Securities Premium : As per Last Balance Sheet 99,592,400 84,242,000 Add : Additions during the year 152,297,100 15,350,400

251,889,500 99,592,400

Balance in Profit and Loss Account 630,343,214 701,135,168

ESOP Outstanding - 116,206,073

TOTAL 943,067,570 977,768,497


141

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142


Schedule IV


Long Term (unquoted)

Trade:


5,00,000 Ordinary Shares of US$ 0.01 each fully paid-up

of Tech Mahindra ( R & D Services ) Inc, USA 234,900 234,900

Less : Provision for Dimunition - -

234,900 234,900

2,40,000 Shares of SGD 1 each, Face Value SGD 2,40,000

fully paid-up of Tech Mahindra ( R & D Services )

Pte Limited, Singapore 6,307,200 6,307,200

Less : Dimunition in Investments 6,307,199 6,057,200

1 250,000

234,901 484,900

Current Investments

Non Trade :

Indira Vikas Patra - 500

DSPML Liquidity Fund-Institutional Plan 38,875,302 -

(38,867.528 Units Of Face Value Rs 1000,

Market Value Rs. 38,875,302)

Tata Fixed Horizon Fund - Series III 46,000,000 -

(46, 00,000 Units Of Face Value Rs 10,

Market Value Rs 46,273,240)

DSPML Fixed Term Plan Series 3C 200,000,000 -

(2,00,000 Units Of Face Value Rs 1000,

Market Value Rs. 200,000,000)

DSPML Fixed Term Plan-Series One B 100,408,363 -

(100407.993 Units Of Face Value 1000 Each,

Market Value Rs 100,499,032.)

DSPML Equity Fund - 487,517

DSPML Floating Rate Fund - 534,526

Franklin India Prima Fund - -

HDFC Capital Builder Fund - 1,335,920

HDFC Cash Management Savings Plus - -

HDFC Multiple Yield Fund - -

As at As at

March 31, 2006 March 31, 2005

Rupees Rupees


143

ICICI Discovery Fund - -

ICICI Emerging Star Fund - -

ICICI Infrastructure Fund - -

Prudential ICICI Floating Rate Plan C - -

SBI Magnum Sectorfund - -

SBIMF Magnum Institutional Income Fund - -

Sundaram Select Midcap - -

Birla Advantage Fund Plan A-F/N 1011291668 - 4,145,377

Birla Bond Plus-F/N 1011291668 - 100,000

Birla Fixed Maturity Plan - 22,496,114

Franklin India Prima Funds-F/N 0019900795595 - 2,000,000

GFRF- Long Term Plan-F/N 228090/65 - 36,000,000

HDFC Balanced Fund - 4,001,110

HDFC Cash Management Savings Plus-F/N 1154426/91 - 596,671

HDFC Equity Fund-F/N 1154426/19 - 2,206,652

HDFC Floating Rate Fund-Short Term-F/N 1154426/91 - 22,000,000

HDFC Multiple Yield Fund-F/N 1154426/9 - 20,000,000

HSBC Equity Fund-Dividend-F/N 77982 - 2,399,508

HSBC Income Fund Short Term-F/N 54582 - 546,486

Prudential ICICI Floating Rate Plan--F/N 692775/94 - 28,506,236

Reliance Equity Opportunities Fund - 9,938,200

Reliance Fixed Term Scheme-F/N 4194186012 - 54,000,000

Reliance Fixed Term Scheme-Plan 15/16-Fn 4195907815 - 10,000,000

Reliance Fixed Term Scheme-Qrtl Plan ( Series Viii) - 12,000,000

Reliance Growth Fund-F/N 4195094864 - 10,487,820

Reliance Index Fund - 4,941,700

Tata Infrastructure Fund - 5,000,000

Tata Liquid Fund-F/N 441364/55 - 1,642,844

Tata Opportunity Equity Fund-F/N 441364/55 - 3,000,000

Tata Short Term Bond Fund-F/N 441364/55 - 212,487

Temepleton Floating Income Fund-F/N 1529900771364 - 1,362,263

Templeton Flexi-Cap Fund - 4,820,000

Templeton India Treasury-F/N 0149900795595 - 55,915,364

Tata Consultancy Services Limited - 497,250

Punjab National Bank - 215,280

3I Infotech Limited - -

385,283,665 321,389,825

TOTAL 385,518,566 321,874,725

As at As at

March 31, 2006 March 31, 2005

Rupees Rupees


144

Schedule V

CURRENT ASSETS, LOANS AND

ADVANCES :

Current Assets :

(A) Sundry Debtors :

(Unsecured)

Debts outstanding for a period exceeding

Six months :

: Considered good - -

: Considered doubtful - -

Other Debts : : Considered good 450,322,119 285,844,324

: Considered doubtful - -

450,322,119 285,844,324

Less : Provision - -

450,322,119 285,844,324

(B) Cash and Bank Balances :

Cash In hand 868,984 752,226

Balance with scheduled Banks :

(i) In current Account 8,276,130 9.902,679

(Ii) In Fixed Deposit Accounts 66.038,840 17,158,740

Balance With Other Banks :

In Current accounts - -

75,183,954 27,813,645

(C) Loans And Advances :

(Unsecured)


Value to be received (i) Considered good 34,479,286 31,161,224

(Ii) Considered Doubtful - -

34,479,286 31,161,224

Less : Provision - -

34,479,286 31,161,224

TOTAL 559,985,359 344,819,193

As at As at

March 31, 2006 March 31, 2005

Rupees Rupees



145

Schedule VI


Sundry Creditors : 164,260,719 9,141,595

TOTAL 164,260,719 9,141,595

PROVISIONS:


Provision for wealth tax 32,776 35,000



TOTAL 57,807,184 29,250,059

Schedule VII

As at As at

March 31, 2006 March 31, 2005

Rupees Rupees


146

SCHEDULES FORMING PART OF THE PROFIT AND LOSS ACCOUNT

As at As at

March 31, 2006 March 31, 2005

Rupees Rupees

Schedule VIII

INCOME :

Income from services (net) 1,215,020,926 1,156,374,299

(Tax deducted at source Rs. 5,00,535 )

( previous period Rs.73,829)

Interest on :

Deposits with banks 1,783,895 1,471,544

(Tax deducted at source Rs.4,04,653 )

(previous period Rs.3,01,737)

Interest on Staff Loans 340,241 502,668

2,124,136 1,974,212

Dividend received on current investments (non - trade) 14,909,064 15,901,168

Profit on sale of current investments 31,833,639 6,184,490

Exchange fluctuations (Net) 13,228,351 4,193,558

Miscellaneous income 14,521,353 3,059,759

TOTAL 1,291,637,469 1,187,687,486

Schedule IX

PERSONNEL :

Salaries, Wages and Bonus 404,913,943 299,625,301

Contribution to provident and other funds 27,362,163 18,457,654

Staff welfare 19,041,494 17,463,249

TOTAL 451,317,600 335,546,204


147

SCHEDULES FORMING PART OF THE PROFIT AND LOSS ACCOUNT (contd.)

As at As at

March 31, 2006 March 31, 2005

Rupees Rupees

Schedule X

OPERATING AND OTHER EXPENSES :

Power 37,732,943 34,305,455

Rent 23,239,723 25,468,724

Rates and taxes 3,274,204 2,227,156


Travelling expenses 87,827,934 95,603,556

Recruitment expenses 268,738 378,888

Hire charges 5,561,779 4,625,615

Repairs and maintenance :

Buildings (including leased premises) 40,017 -

Machinery 4,434,169 3,937,890

Others 1,258,901 1,350,374

5,733,087 5,288,264

Insurance 4,821,351 5,808,222


Software packages 841,800 -

Training 2,469,183 3,527,470

Advertising, marketing and selling expenses 70,110 1,789,363

Onsite fees 72,339,106 -

Marketing fees 203,521,349 333,477,641

Loss on sale of fixed assets (Net) 1,012,079 (89,898)

ESOP Compensation written Off 36,091,027 100,632,473

Dimunition in the value of Investments 364,428 2,815,585

Advances / bad debts written off (65,380) 3,668,657

Exchange fluctuations (Net) 5,968,688 -


TOTAL 535,191,718 655,800,030

* includes Printing and stationery expenses,hospitality expenses, office maintenance, etc.

148

I. SIGNIFICANT ACCOUNTING POLICIES:

1. Basis for Preparation of Financial Statements :

The Financial statements are prepared under the historical

cost convention, in accordance with generally accepted

accounting principles and the provisions of the Companies

Act, 1956, as adopted consistently by the company. All

income and expenditure having a material bearing on the

financial statements are recognized on the accrual basis.

2. Use of Estimates :

The preparation of financial statements in conformity with

Generally Accepted Accounting Principles requires

management to make estimates and assumptions that affect

the reported amounts of assets and liabilities and disclosure

of contingent liabilities at the date of the financial statements

and the results of operations during the reporting yearend.

Although these estimates are based upon management's best

knowledge of current events and actions, actual results could

differ from these Estimates.

Management periodically assesses using external and

internal sources whether there is an indication that an asset

may be impaired. Impairment occurs where the carrying

value exceeds the present value of future cash flows expected

arise from the continuing use of the asset and its eventual

disposal. The impairment loss to be expensed is determined

as the excess of the carrying amount over the higher of the

asset's net sale price or present value as determined above.

Contingencies are recorded when it is probable that a liability

will be incurred, and the amount can be reasonably

estimated. Actual results could differ from these estimates.

3. Revenue Recognition :

Revenue is recognized upon completion of milestones

described in customer orders wherever payments are linked

to such milestones. In cases where payments are based on

completion of each man-month of service rendered, revenue

is recognized upon completion of each man-month of service.

Income from fixed income bearing investments/advances is

recognized on time basis considering the amount

invested/advanced and the rate of interest.

Income from training is recognized over the period of

instruction.

Dividend income is recognized when the company's right to

receive the dividend is established. Profit on sale of

investments is recognized on transfer of title from the

company and is determined as the difference between the

sale price and the carrying value of the investment.

4. Expenditure :

Expenses are accounted on the accrual basis and provisions

are made for all known losses and liabilities.

5. Foreign Currency Transaction :

Foreign currency transactions during the year are translated

at the exchange rates prevailing on the date of transaction.

SCHEDULE FOR NOTES ON ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006

Current Assets and Current Liabilities outstanding in foreign

at exchange rates prevailing as on the last day of the relevant

financial year. Differences arising out of rate fluctuations are

charged to revenue accounts.

The Company uses foreign exchange forward contracts to

hedge its exposure to movement in foreign exchange rates.

The Use of these foreign exchange forward contracts reduces

the risk or cost to the company and the company does not use

the foreign exchange contracts for trading or speculation

purposes. The company records the gain or loss on effective

hedges over the period of forward contract and is transferred

to the profit and loss account of that period.

6. Fixed Assets :

Fixed assets are stated at cost of acquisition, less

accumulated depreciation. All Direct costs are capitalised till

the assets are ready to be put to use. Capital Work-in-

progress is stated at cost.

7. Depreciation :

The Company has changed its accounting policy on method of

depreciation with effect from 01st April 2005 and has adopted

the Straight Line Method of depreciation in place of Written

Down Value Method.

Depreciation in respect of Fixed Assets, is provided adopting

straight-line method over the useful life of the asset as

estimated by the management. Depreciation for the assets

purchased/sold during the period is proportionately charged.

Individual low cost assets (acquired for less than Rs.5,000/-)

are entirely depreciated in the year of acquisition. The useful

life of all the assets estimated by the management are as

below:

8. Retirement Benefits :

Gratuity: in accordance with the Payment of Gratuity Act,

1972, company provides for gratuity, a defined benefit

retirement plan (the Gratuity Plan) covering eligible

employees. The gratuity plan provides a lump-sum payment

to vested employees at retirement, death, incapacitation or

termination of employment, of an amount based on the

employee salary and the tenure of employment. Liabilities

with regard to the gratuity plan are determined by actuarial

valuation, based upon which the company contributes all the

ascertained liabilities to the 'Axes Technologies Gratuity

Trust'. Trustees administer contributions made to the trust

and contributions are invested in the specific designated

instruments, as permitted by law.

Buildings 15 years

Computers 3 years



Vehicles 5 years

currency as on the date of the Balance Sheet are translated


149

1. Corporate Transaction :

During the current period, the Shareholders of the Company

have entered into a Share Purchase Agreement with M/s.

Tech Mahindra Limited (TML) (formerly M/s. Mahindra British

Telecom Limited) on 15th November 2005, under which,

99.93% of the shares of the Company are sold to TML under

the terms of the Share Purchase Agreement entered into

between the said Shareholders, the Company and the TML.

Consequent to the said Share Purchase Agreement and the

recording of the transfer of shares in favour of TML, the

company would become a wholly-owned subsidiary of TML.

2. Change in Method of charging depreciation :

The Board of Directors of the company in the meeting held on

20th October, 2005 have changed the Accounting Policy of the

company in respect of charging Depreciation with effect from

1st April, 2005. The Company was following Written Down

Value Method of charging the depreciation at the rates as

prescribed under Schedule XIV of Companies Act, 1956.

Pursuant to the Board resolution changing the Accounting

Policy the Company has changed the method of charging

Depreciation on Fixed Assets, from Written Down Value

Method to Straight Line Method over the useful lives of the

assets as determined by the management, retrospectively,

from the date of inception.

Depreciation on Fixed Assets has been calculated as per new

method retrospectively for all the assets of the Company. As a

result of such change, the Company has recognized the

additional depreciation amounting to Rs.10,08,00,375/- and

the same is charged to Profit and Loss Account as a separate

item for the current period and accordingly disclosed

separately in the Profit and Loss Account. Had the Company

continued to charge the depreciation according to the old

method, the charge of depreciation for the current year would

have been Rs 4,71,94,339/- and hence the net profit for the

year has been reduced to the extent of Rs 11,65,60,603/-.

3. Share Capital :

During the current year, 7,69,900 Equity Shares of Rs.5/-

each, were issued and allotted at Rs.5/- each, amounting to

Rs.38,49,500/- to Employees of the Company and its

Subsidiaries.

The Issued, Subscribed & Paid up Equity Capital as at the end

of the year includes the allotment of equity

shares, fully paid-up issued by way of Bonus shares,

50,00,000 equity shares of Rs.5/- each totaling to

Rs.2,50,00,000/-

4. Fixed Assets :

The Company possesses Assets worth Rs. 15,915.17 Lakhs

whose ownership does not vest with the Company and are in

use by the company on a "Loan basis". No entries are passed

in the books of the Company in respect of these Assets. The

Details of such Fixed Assets are as below :

II. NOTES ON ACCOUNTS for the year ended March 31, 2006 (forming an integral part of accounts)

Provident Fund : Eligible employees receive benefits from a

provident fund, which is a defined contribution plan. Both the

employees and the company make monthly contributions to

the provident fund plan equal to a specified percentage of the

covered employes' salary.

9. Investments :

Investments are categorized into Long Term Investments and

Current Investments. Long Term Investments are stated at

cost unless there is a decline, other than temporary, in value

thereof in which case the recorded value is reduced to

recognize the decline. Current Investments are carried at

lower of Cost or Fair Market value as on the date of Balance

Sheet.

10. Income Taxes and Deferred Taxes :

The differences that result between the profit offered for

income taxes and the profit as per the financial statements

are identified, and thereafter a deferred tax asset or deferred

tax liability is recorded for timing differences, namely the

differences that originate in one accounting period and

reverse in another, based on the tax effect of the aggregate

amount being considered. The tax effect is calculated on the

accumulated timing differences at the end of an accounting

period based on prevailing enacted or substantially enacted

regulations. Deferred tax assets are recognized only if there is

reasonable certainty that they will be realized and are

reviewed for the appropriateness of their respective carrying

values at each balance sheet date.

11. Earnings per Share :

Basic earning per share is computed by dividing net income

by the weighted average number of common stock

outstanding during the period. The number of shares used in

computing diluted earnings per share comprises the weighted

average shares considered for deriving basic earning per

share, and also the weighted average number of equity

shares that could have been issued on the conversion of all

dilutive potential equity shares. The diluted potential equity

shares are adjusted for the proceeds receivable, had the

shares been actually issued at fair value (i.e., the average

market value of the outstanding shares). Diluted potential

equity shares are deemed converted as of the beginning of

the period, unless issued at a later date.

12. Cash Flow Statement :

Cash flows are reported using the indirect method, whereby

profit before tax is adjusted for the effects of transactions of a

non-cash nature and any deferrals or accruals of past or

future cash receipts or payments. The cash flows from regular

revenue generating; financing and investing activities of the

company are segregated.

13. Events occurring after the date of Balance Sheet :

Material events occurring after date of Balance Sheet are

taken into cognizance.

150

7. Employee Stock Option Plan :

During the previous years, the Company had granted

4,23,000 employee stock options to the employees of Tech

Mahindra ( R & D Services) Pte Limited, Singapore (formerly

Axes Technologies (Singapore) Pte Ltd) and Tech Mahindra

(R& D Services) Inc, USA (formerly Axes Technologies Inc),

subsidiaries of the company as per terms enunciated in the

“Axes ESOP Plan-1” and had forfeited 6,500 options.

Also the company had granted 4,92,600 employee stock

option to its own employees as per the terms enunciated in

the “Axes ESOP Plan-1” and had forfeited 21,500 options

during previous years.

The excess of fair market value (as determined by the Board)

of the underlying equity shares as of the date of the grant of

the options over the exercise price of the options, including

up-front payments, if any, is recognized and amortized on a

straight line basis over the vesting period. The amortization

during the current period on this basis, including the reversal

on forfeited options, amounts to a sum of Rs. 3,60,91,027/-,

which is shown separately in Schedule X to the Profit & Loss

Account. The said amortization includes amount recognized

as expense relating to accelerated vesting on the options on

account of the corporate transaction.

Out of the options granted during the previous years, all the

employees have exercised and the company has allotted

466,300 shares to employees of Tech Mahindra (R & D

Services) Limited at face value of Rs.5/- per share & the

company has allotted 303,600 shares to employees of Tech

Mahindra (R & D Services) Inc at face value of Rs.5/- per

share.

A sum of Rs.15,22,97,100/- has been recognized as

securities premium, representing the difference between the

fair market value of the shares (as determined by the Board)

and the issue price per share.

Number of options granted, exercised and forfeited during

the Year for employees of Tech Mahindra (R & D Services) Inc

II. NOTES ON ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2006 (FORMING AN INTEGRAL PART OF ACCOUNTS) (contd.)

Particulars

a) Towards Bank Guarantees given to Government Authorities

b) Estimated amount of contracts remaining to be executed on capital account and not provided for

c) Claims from Statutory Authorities

2005-2006 2004-2005

200.00

6.92

20.50

167.20

40.20

15.00

Amt. In Rs. Lakhs

5. Contingent Liability :

6. Foreign Exchange Inflow and Outflow :

The Foreign Exchange Inflow and Outflow of the Company during the year was as follows:

Inflow 2005-2006

Rs. 116,23,89,182/-(US$ 2,62,32,522/-)

Rs. 2,07,85,011/-(US$ 4,71,114.75)-

Rs. 48,58,500/-(US$ 1,00,000/-)

Rs. 15,18,936/-(US$ 34,824.84/-)

2005-2006

Rs. 52,13,35,035/-(US$ 119,08,326/-)

Rs. 118,74,776/-(US$ 2,69,526/-)

Rs. 50,00,000/-(US$ 114207/-)

2004-2005

Rs. 89,66,55,763/-(US$ 1,98,70,664/-)

Rs. 44,58,417/-(US$ 1,01,568/-)

Rs. 45,65,000/-(US$ 1,00,000/-)

Rs. 5,33,000/-(US$ 12,174.50)

Rs. 23,75,48,741/-(US$ 53,26,669/-)

Rs. 68,15,570/-(US$ 1,51,164/-)

Rs. 1,82,05,479/-(US$ 4,06,494/-)

2004-2005Outflow

Towards Software Sales

Towards reimbursement of expenses

Towards Dividends

Towards Share Capital

Revenue Items

(Travel, Marketing)

Capital Items purchased

Dividend

Name of the Party

Alcatel Inc., USA

Motorola

Ipgen Inc

Coppercom

Paradyne

Ulticom

Others

Total

Amount (Rs. Lakhs)

14,574.20

443.79

85.55

109.33

232.72

30.82

438.76

15,915.17

Particulars

Options outstanding at the beginning of the year

Granted

Less: Exercised

March 31 2006

309,900 214,750

Year ended on

Forfeited

Options outstanding at the end of the year

Nil

303,600

6,300

Nil

208,250

106,600

6,500

309,900

March 31 2005

TECH MAHINDRA ( R & D SERVICES ) LIMITED

151


Number of options granted, exercised and forfeited during the

Year for employees of the Company.

8. Deferred Taxation :

During the year, the company has accounted for

Rs19,614,933/- towards reversal of opening Deferred Tax

Liability in accordance with AS 22-Accounting for Taxes on

Income and has considered the same as a reversal to profit

and loss account. This is consequent to the change in

depreciation policy of the Company.

The company has during the year, a deferred tax Asset on

account of difference in depreciation charged as per Company

books and as per Income Tax Act. Considering prudence, in

the absence of certainty of future taxable income from some

of the undertakings, the company has not recognized any

Deferred tax asset in respect of such depreciation difference.

Particulars

Options outstanding at the beginning of the year

Granted

Less: Exercised

31.03.2006

471,100 Nil

Year ended on

31.03.2005

Forfeited

Options outstanding at the end of the year

Nil

466,300

4,800

Nil

492,600

Nil

21,500

471,100

9. Segmental Reporting :

The company's operations predominantly relate to providing

IT services delivered to eventual customers in the United

States of America and operating in the telecom industry

segment. Accordingly, IT services Revenues are represented

along single industry class represents the primary basis of

segmental information and the geographical location of

customers represents the Secondary segment of reporting.

During the current period the financials of the company

represent a single Primary segment (Telecom industry). With

respect to the Secondary segment, the company's Revenues

would represent two segments in terms of Geography USA &

Domestic.

In view of the fact that the primary segment is represented by

a single segment and in the case of the Secondary Segment,

the Revenues from the Domestic segment is less than 0.73%

of the total Revenues of the company the providing of

Segmental Information is not applicable to the company.


152

11. Related Party Disclosure : A. Details of Related Parties as at the end of current year are given below:

1) Holding Companies

2) Subsidiary Companies

3) Associate Companies

4) Whole Time Directors


1. Tech Mahindra (R & D Services) Inc., USA.

2. Tech Mahindra (R & D Services) Pte Ltd, Singapore

1. Transglobal Technologies Inc., USA

2. Ipgen Technologies India Private Limited

3. Ipgen Technologies Inc., USA

4. Tech Mahindra (Singapore) Pte Ltd, Singapore

5. Tech Mahindra (Americas) Inc, USA

6. Tech Mahindra GmbH, Germany

7. Tech Mahindra (Thailand) Limited, Thailand

1. Mr. Vineet Nayyar

2. Mr. Paul Pandian

3. Mr. C P Gurnani

4. Mr. Sanjay Kalra

5. Mr. Sunil Joshi

10. Earnings Per share :

March 31 2006

(7.93) 15.95

Period ended on

March 31 2005

Particulars

Basic

Diluted

Number of shares used in computing earnings per share

(7.69)

89,29,163

92,11,368

14.58

8,349,477

9,132,244

Equity Share of par value Rs.5/- each

Basic

Diluted



153

B. Summary of Transactions with Related Parties are as below :Amt in Rs. Lakhs

Particulars

Capital Assets taken on loan basis as at end of the year

Amount of sale of materials / services rendered during the year

Amount of purchase of materials / services received during the year

Amount receivable / (payable) at the end of the year

Investments made by the company outstanding at the end of the year

Nil

12,061.67

2,758.60

4,488.46

2.35

Nil

Nil

Nil

Nil

63.07

Nil

Nil

Nil

Nil

Nil

85.55

Nil

Nil

Nil

Nil

Ipgen USATrans-Global Inc

TMRDS Singapore

TMRDS USA

Details with respect to remuneration to Directors are disclosed in Note 15 below.

12. Extra-ordinary Items shown in Profit and Loss

Account :

During the current year, pursuant to the Corporate

transaction entered into by the shareholders of the

company, the Company has incurred the following expenses

in the nature of extraordinary items and the same is

disclosed separately in the financial Statements:

The Company has incurred a total sum of Rs.615.66 Lakhs in

relation to transfer of shares from the erstwhile share

holders to TML. The amount spent is in the nature of

consultancy fees and other transfer related expenses.

13. Contractual Compensation under Client Contracts :

During the relevant period, the company has entered into an

addendum to the Development Agreement with its principal

Client - Alcatel Inc, USA, whereby in lieu of securing current

and future Contracts from the said Client and certain

modifications to certain terms of the original Development

Agreement, the Company has provided for a sum of

Rs.1165.44 Lakhs, as payable to the said M/s Alcatel Inc,

USA. This has been disclosed Separately as an extraordinary

item in the Financial Statements.

14. Auditor's Remuneration :

Auditor's remuneration debited to Profit & Loss Account

during the year are as follows;

Particulars 2005-06 2004-05

Audit Fees 3,37,340 1,89,000

Tax Audit Fees 50,000 37,800

Certification &

Other Services 3,27,896 43,200

15.Managerial remuneration paid to the Chairman and

Vice Chairman :

Paul Pandian (Chairman) Rs. 5,62,500/-

S Udaya Kumar (Vice Chairman) Rs. 12,00,000/-

16. CIF Value of imports during the period is Rs. 1,156.09 Lakhs.

(Previous Year 1,490.78)

17.Amount shown as Miscellaneous expenses in Schedule X

Operating Expenses includes Prior period expenses of

Rs.3,75,224 (Previous Year. Rs 2,38,468/-).

18.Quantitative details :

The Company is engaged in the development of Software.

The production and sale of such software cannot be

expressed in any generic unit. Hence, it is not possible to

give the quantitative details of sales and the information as

required under paragraphs 3, 4C, and 4D of part II of

Schedule VI of the Companies Act, 1956.

19.As at the end of current year, the company had no

outstanding dues to small -scale industrial undertakings in

Excess of Rs.1,00,000/-.

20.Previous year figures have been regrouped and reclassified

wherever necessary.




154

PART IVBALANCE SHEET ABSTRACT & COMPANY'S GENERAL BUSINESS PROFILE

Registration Details

a. Registration No. 18673

b. State Code 08

c. Balance Sheet Date Mar 31, 2006

Capital Raised during the year:

a. Public Issue NIL

b. Rights Issue NIL

c. Bonus Issue NIL

d. Private Placement 3,849,500

Position of mobilisation and deployment of funds

a. Total Liabilities 989,101,070

b. Total Assets 989,101,070

Sources of funds

- Paid Up Capital 46,033,500

- Reserves & Surplus 943,067,570

- Deferred Taxation NIL

- Secured Loans NIL

- Unsecured Loans NIL

Application of funds

- Net Fixed Assets 265,665,048

- Investments 385,518,566

- Net Current Assets 559,985,359

- Misc.Expenditure NIL

Performance of Company

Total Income 1,291,637,469

Total Expenditure 1,328,374,356

Profit / Loss before Tax (36,736,887)

Profit / Loss after Tax (70,791,954)

Earnings per share in Rs. -7.93

Dividend Rate (%) NIL

Generic name of principal products/service of the Company

Item code no. ( ITC code) 8524490.02

Product description Computer software

Annual Report 2005 - 2006TECH MAHINDRA ( R & D SERVICES ) LIMITED

155

A. Name of the Subsidiary Tech Mahindra (R&D Services) Tech Mahindra (R&D Services)

Inc. Pte Ltd.

B. Financial year of the Subsidiary ended on March, 31 2006 March, 31 2006

C. The Company's interest in the subsidiary on

the aforesaid date.

a) Number of shares held The Company held the entire 2,40,000 Ordinary Shares

common stock of aggregate

value of USD 5000

b) Face value per share USD 0.01 SGD 1.00

c) Extent of Holding 100% 60%

D. The net aggregate of the Profit/(Losses) of the

Subsidiary so far it concerns the members

of the Company

a) Not dealt with in the accounts of the

Company amounted to

1. For the Subsidiary's financial year ended

as in “B” above USD 225,718 SGD (6,613)

2.For the Previous financial years of the subsidiary

since it became Company's subsidiary USD 195,800 SGD (13,429)

b) Dealt with in the accounts of the Company

amounted to

1. For the Subsidiary's financial year ended

as in “B” above NA NA

2. For the Previous financial years of the

subsidiary since it became Company's subsidiary NA NA

STATEMENT PURSUANT TO SECTION 212 OF THE COMPANIES ACT,1956RELATING TO THE SUBSIDIARY COMPANIES

For Tech Mahindra ( R & D Services)Limited

Mr. Vineet Nayyar Mr. C.P.GurnaniDirector Director

Bangalore Mrs. Sudha RaniDate : April 26, 2006 Company Secretary

156

Tech Mahindra (R & D Services) Inc.(Formerly Axes Technologies Inc.)

Board of Directors

1. Mr. Paul Pandian2. Mr. C P Gurnani 3. Mr. Sanjay Kalra

Registered Office

2711 Centreville Road, Suite 400. Wilmington Delaware 19808 U.S.A.

Bankers

J P Chase

Auditors

Hector Homero Flores,Certified Public Accountants


157

CONTENTS PAGE



Independent Auditors Report on

Supplemental Schedule 160

Supplemental Balance Sheet 160

Statement of Income 161

Statement of Cash Flow 162


Supplemental Statements Of Stockholder's Equity 161

Supplemental

Supplemental

Tech Mahindra (R & D Services) Inc.

158

DIRECTORS' REPORT TO THE SHAREHOLDERSstYour Directors present their Report together with the audited accounts of your Company for the year ended 31 March 2006.


During the fiscal year, the Company achieved sales of US$ 6.23 million, with a decline of 16% over the sales of previous year.

ACQUISITION OF THE COMPANY

The Company became a step-down subsidiary of Tech Mahindra Limited (Formerly Mahindra-British Telecom Limited), with the

acquisition of its Parent Company, Tech Mahindra (R&D Services) Limited (Formerly Axes Technologies (India) Private Limited).

CHANGE OF NAME

In order to be identified with the parent Company, your Company's name was changed from Axes Technologies Inc. to Tech

Mahindra (R & D Services) Inc.


Your Company invested in cultivating long term relationships with major telecom companies. The Company believes that there is

potential growth in USA and the long term investments will begin to bear fruit in the near future.

ACKNOWLEDGEMENTS

Your Directors gratefully acknowledge the contributions made by the employees towards the success of the Company. Your

Directors are also thankful for the co-operation and assistance received from its customers, suppliers, bankers, State and Federal

Government Authorities and the shareholder.

FINANCIAL RESULTS

For the year ended March 31 2006 2006 2005 2005

USD INR USD INR

Income 6,233,686 278,396,419 7,417,082 331,246,882

Profit/(Loss) before tax 352,850 15,758,288 326,389 14,576,533

Profit/(Loss) after tax 225,719 10,080,576 195,800 8,744,428

Paul Pandian

Director

April 3, 2006

Annual Report 2005 - 2006 Tech Mahindra (R & D Services) Inc.

159

To:

Tech Mahindra (R & D Services), Inc.

I have audited the accompanying balance sheets of Tech Mahindra (R & D Services), Inc. (a Delaware corporation wholly owned by

Tech Mahindra (R & D Services) Pvt. Ltd.) as of March 31, 2006 and 2005, and the related statements of income, retained earnings,

and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. My

responsibility is to express an opinion on these financial statements based on my audits.

I conducted my audits in accordance with auditing standards generally accepted in the United States of America. Those standards

require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material

misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial

statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well

as evaluating the overall financial statement presentation. I believe that my audits provide a reasonable basis for my opinion.

In my opinion the financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of

Tech Mahindra (R & D Services), Inc. as of March 31, 2006 and 2005, and the results of its operations and its cash flows for the years

then ended in conformity with accounting principles generally accepted in the United States of America.

Hector Homero Flores

April 3, 2006

INDEPENDENT AUDITOR’S REPORT

160

INDEPENDENT AUDITOR’S REPORT ON SUPPLEMENTAL INFORMATION

SUPPLEMENTAL BALANCE SHEETS

Assets

Current Assets

Cash 2,730,852 121,959,860 898,285 40,117,408

Due from parent - - 26,968 1,204,391

Prepaid expenses 68,269 3,048,896 75,644 3,378,261

Total Current Assets 2,799,121 125,008,755 1,000,897 44,700,060

TOTAL ASSETS 2,799,121 125,008,755 1,000,897 44,700,060

Liabilities & Shareholder's Equity

Liabilities

Current Liabilities

Accounts payable 35,290 1,576,059 62,523 2,792,277

Accrued liabilities 257,642 11,506,316 207,323 9,259,045

Due to parent 1,580,819 70,599,395 - -

Dividends payable - - 100,000 4,466,000

Income tax payable 68,600 3,063,672 - -

Total Current Liabilities 1,942,352 86,745,442 369,846 16,517,322

Total Liabilities 1,942,352 86,745,442 369,846 16,517,322

Shareholders' Equity

Common stock, $.01 par value,

Authorized 500,000 shares;

issued 500,000 shares 5,000 223,300 5,000 223,300

Retained earnings 851,769 38,040,013 626,051 27,959,438

Total Shareholder's Equity 856,769 38,263,313 631,051 28,182,738

Total Liabilities & Equity 2,799,121 125,008,755 1,000,897 44,700,060

2006USD

2006INR

2005INR

2005USD

Tech Mahindra (R & D Services), Inc.

My report on my audits of the basic financial statements of Tech Mahindra (R&D Services), Inc., a wholly owned subsidiary of Tech

Mahindra (R & D Services) Pvt. Ltd, an India corporation, for 2006 and 2005 appear on page 1. I conducted my audits in accordance

with the U.S. generally accepted auditing standards for the purpose of forming an opinion on the basic financial statements taken as a

whole. The information on pages 10-15 is presented for purposes of additional analysis and are not a required part of the basic

financial statements. It has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in my

opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

Foreign Currency amounts in the supplemental schedules are translated for convenience into Indian Rupees at the exchange rate of Rs

44.66 to 1.00 USD, which is the average of telegraphic buying and selling rate quoted by the Mumbai Branch of the State Bank of India

on March 31, 2006.

Hector Homero Flores

April 3, 2006


FOR THE YEARS ENDED MARCH 31,


161

Common Retained Common Retained Common Retained Common Retained

Stock Earnings Stock Earnings Stock Earnings Stock Earnings

Balance, beginning

of year 5,000 626,051 223,300 27,959,438 5,000 530,251 223,300 23,681,010

Net income - 225,718 - 10,080,576 - 195,800 - 8,744,428

Dividends declared - - - - - (100,000) - (4,466,000)

Balance, end of year 5,000 851,769 223,300 38,040,013 5,000 626,051 223,300 36,891,438

2006USD

2006INR

2005INR

2005USD

SUPPLEMENTAL STATEMENTS OF STOCKHOLDER'S EQUITY


SUPPLEMENTAL STATEMENTS OF INCOME

Revenues

6,233,686 278,396,419 7,417,082 331,246,882

Expense

Software development 3,154,692 140,888,542 4,624,151 206,514,584

General and administrative 1,721,868 76,898,612 1,875,792 83,772,871

Sales and marketing 1,004,276 44,850,978 590,750 26,382,895

Total Expense 5,880,836 262,638,132 7,090,693 316,670,349

Net income before income taxes 352,850 15,758,288 326,389 14,576,533

Provision for income taxes 127,132 5,677,712 130,589 5,832,105

Net income 225,718 10,080,576 195,800 8,744,428

2006USD

2006INR

2005INR

2005USD


For the years ended March 31,



162

SUPPLEMENTAL STATEMENTS OF CASH FLOWS

Operating Activities

Net income 225,718 10,080,576 195,800 8,744,428

Adjustments to reconcile net income

to net cash provided by operations:

Decrease in due from parent 26,968 1,204,391 452,596 20,212,937

Decrease (Increase) in prepaid expenses 7,375 329,368 (31,515) (1,407,460)

Decrease in accounts payable (27,233) (1,216,226) (131,096) (5,854,747)

Increase in accrued liabilities 50,319 2,247,247 162,133 7,240,860

Increase in income tax payable 68,600 3,063,676 (15,736) (702,770)

Increase in due to parent 1,580,820 70,599,421 - -

Net cash provided by operating activities 1,932,567 86,308,452 632,182 28,233,248

Cash Flows from financing activities:

Dividends paid on common stock (100,000) (4,466,000) (100,000) (4,466,000)

Net cash used by financing activities (100,000) (4,466,000) (100,000) (4,466,000)

Net cash increase for period 1,832,567 81,842,452 532,182 23,767,248

Cash and cash equivalents at beginning of year 898,285 40,117,408 366,103 16,350,160

Cash and cash equivalents at end of year 2,730,852 121,959,860 898,285 40,117,408

Supplemental Disclosure of Cash Flow Information

Cash Paid During the Period for Taxes 71,135 3,176,889 160,040 7,147,386

2006USD

2006INR

2005INR

2005USD




163

SUPPLEMENTAL NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2006 AND 2005

1)Summary of Significant Accounting Policies

a) Business and Nature of Operations

Tech Mahindra (R & D Services), Inc. (Company), formerly known as Axes Technologies, Inc., is a Delaware corporation formed in

2001 for the purpose of providing technology staffing services to Tech Mahindra (R & D Services) Pvt. Ltd. (TMI), formerly known as

Axes Technologies (India) Private Limited. Company performs marketing, managerial and administrative functions needed to service

the TMI customers based in the United States.

b) Reporting Entity

The accompanying financial statements do not include the assets, liabilities and net assets of Tech Mahindra (R & D Services) Pvt. Ltd.

c) Basis of Accounting

The financial statements of the Company have been prepared on the accrual basis of accounting.

d) Use of Estimates

The process of preparing financial statements in conformity with accounting principles generally accepted in the United States

requires the use of estimates and assumptions

regarding certain types of assets, liabilities, revenue and expenses. Such estimates primarily relate to unsettled transaction and

events as of the date of the financial

statements. Accordingly, upon settlement, actual results may differ from estimated amounts.

e) Cash Equivalents

For the purpose of reporting cash flows, the Company considers all cash in banks to be cash equivalents.

f) Revenue Recognition

A transfer pricing study performed established that a net operating margin in the range of 4.88% to 8.59% with a median of 6.03%

was a reliable profit level indicator. Based on this study Axes recognizes revenue that will result in a net operating margin in

accordance with the transfer pricing study.

2) Income Taxes

The components of income tax expense are as follows:

2006 2006 2005 2005

USD INR USD INR

Current

State 3,919 175,021 15,819 706,477

Federal 123,213 5,502,691 114,770 5,125,628

127,132 5,677,712 130,589 5,832,105


164

2006 2006 2005 2005

USD INR USD INR

Due to India 11,946,958 533,551,144 10,904,962 487,015,602

Due From

Customers (8,443,594) (377,090,898) (6,351,255) (283,647,048)

Due from

India for

Operating

Expenses (1,922,545) (85,860,851) (4,580,675) (204,572 945)

Due to (From)

Parent 1,580,819 70,599,395 (26,968) (1,204,391)

3) Commitments and Contingencies

The Company leases office space and equipment, which are, classified as operating leases. A summary of future commitments on the

leases is as follows as of March 31,

Office Space Equipment

USD INR USD INR

2006 234,084 10,483,347 32,600 1,455,916

2007 189,259 8,452,307 17,964 802,272

2008 189,259 8,452,307 1,144 51,091

2009 189,259 8,452,307

2010 189,259 8,452,307

2011 78,858 3,521,798

Total 1,069,978 47,814,373 51,708 2,309,279

4) Related Party Transactions

The Company performs administrative, managerial and marketing duties on behalf of TMI. One of these specific functions is to provide

billing and collection services. In providing these services the Company receives payment for services provided by TMI to its

customers based in the United States. These funds are received by the Company and transmitted to TMI. The Company invoices TMI

for expenses incurred in performing its administrative, managerial and marketing functions.

The Company collects amounts due from customers and remits these funds to TMI in total. The Company in turn invoices TMI for the

cost of operating plus a profit as described in Note 1(f). As of March 31, 2006 and 2005 the intercomany amounts are as follows:

Annual Report 2005 - 2006 Tech Mahindra (R & D Services)Pte. Ltd.

165

Tech Mahindra (R&D Services) Pte. Limited (Formerly Axes Technologies (Asia Pacific) Pte. Limited)

Board of Directors

1. Mr. Paul Pandian 2. Mr. Sonjoy Anand 3. Mr. Sunil Joshi4. Mr. Saeed Ullah Khan

Registered Office

460, Alexandra Road, #24-05 PSA Building Singapore 119 963

Bankers

HSBC Bank

Auditors

Y. C. Foo & Co.,Certified Public Accountants, Singapore

166

CONTENTS PAGE

Report of Directors 167

Statement of Directors 168


Balance Sheet 169

Profit And Loss Account 170

Statement Of Changes In Equity 170

Cash Flow Statement 170

Notes To The Financial Statements 171

166


167

REPORT OF THE DIRECTORS

The directors have pleasure in submitting their report together with the audited accounts of the company for the financial year ended 31 March 2006.

DIRECTORS OF THE COMPANY

The directors in office at the date of this report are:-

Saeed Ullah KhanPaul Chelliah PandianSonjoy Anand (appointed on 28.11.2005)Sunil Joshi (appointed on 28.11.2005)Masillamoney Paul Premraj (resigned on 28.11.2005)

ARRANGEMENT FOR DIRECTORS TO ACQUIRE SHARES OR DEBENTURES

Neither at the end of nor at any time during the financial year was the company a party to any arrangement whose object is to enable

the directors of the company to acquire benefits through the acquisition of shares in or debentures of the company or any other body

corporate.

DIRECTORS' INTEREST IN SHARES OR DEBENTURES

According to the register of directors' shareholdings required to be kept by the company under Section 164 of the Companies Act, Cap.

50, none of the directors who held office at the end of the financial year had any interest in the shares of the company.

DIRECTORS' CONTRACTUAL BENEFITS

Since the end of the previous financial year, no director has received or become entitled to receive a benefit which is required to be

disclosed by Section 201(8) of the Companies Act, Cap. 50 by reason of a contract made by the company or a related corporation with

the director or with a firm of which he is a member, or with a company in which he has a substantial financial interest.

SHARE OPTIONS GRANTED

No options were granted during the financial year to take up unissued shares of the company.

SHARE OPTIONS EXERCISED

No shares were issued by virtue of the exercise of options to take up unissued shares of the company during the financial year.

UNISSUED SHARES UNDER OPTION

There were no unissued shares under option at the end of the financial year.

AUDITORS

The auditors, Y C Foo & Co, Certified Public Accountants, Singapore, have indicated their willingness to accept re-appointment.

On behalf of the directors

Saeed Ullah Khan

Paul Chelliah Pandian

Singapore

May 23, 2006

Tech Mahindra (R & D Services)Pte. Ltd.

168

STATEMENT BY DIRECTORS

We, the undersigned, being directors of TECH MAHINDRA (R & D SERVICES) PTE. LIMITED (Formerly known as Axes Technologies

(Asia Pacific) Pte Ltd), do hereby state that in our opinion:-

a) The accompanying financial statements are drawn up so as to give a true and fair view of the state of affairs of the Company

as at 31 March 2006 and of the results of the business, changes in equity and cash flows of the company for the financial

Year then ended on that date.

b) At the date of this statement there are reasonable grounds to believe that the company will be able to pay its debts as

and when they fall due.

On behalf of the directors

Saeed Ullah Khan

Paul Chelliah Pandian

Singapore

May 23, 2006

REPORT OF THE AUDITORS TO THE MEMBERS OFTECH MAHINDRA (R & D SERVICES) PTE. LIMITED

We have audited the accompanying balance sheet of TECH MAHINDRA (R & D SERVICES) PTE. LIMITED (Formerly known as Axes

Technologies (Asia Pacific) Pte Ltd) as at 31 March 2006, the profit and loss account, statement of changes in equity and cash flow

statement for the financial year then ended. These financial statements are the responsibility of the company' s directors. Our

responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with Singapore Standards on Auditing. Those Standards require that we plan and perform the



assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial

statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion:-

a) The financial statements are properly drawn up in accordance with the provisions of the Companies

Act (the "Act") and Singapore Financial Reporting Standards and so as to give a true and fair view of:-

1) The state of affairs of the company as at 31 March 2006 and of the results, changes in equity and cash flows of the

Company for the financial year then ended on that date; and

2) The other matters required by section 201 of the Act to be dealt with in the accounts;

B) The accounting and other records required by the Act to be kept by the company have been properly

kept in accordance with the provisions of the Act.

Y C FOO & CO

CERTIFIED PUBLIC ACCOUNTANTS

SINGAPORESingapore

May 23, 2006

Annual Report 2005 - 2006 TECH MAHINDRA (R & D Services) Pte. Ltd.

169


Note 2006 2006 2005 2005

$ Rs $ Rs

Share capital and reserve

Authorised: 500,000 ordinary shares of $1 each 500,000 13,795,000 500,000 13,795,000

Issued and paid-up: 400,000 ordinary shares of

$1 each 400,000 11,036,000 400,000 11,036,000

Accumulated losses (401,338) (11,072,915) (394,725) (10,890,463)

TOTAL (1,338) (36,915) 5,275 145,537

Represented by:-

Non-current assets

Plant and equipment 3 1 28 1 28

Current assets

Amount owing from a shareholder 4 - - 16,052 442,875

Prepayment - - 563 15,533

Cash and bank balances 10,661 294,137 37,244 1,027,561

10,661 294,137 53,859 1,485,969

Less: Current liabilities

Other payables 5 12,000 331,080 48,585 1,340,460

Net current (liabilities)/assets (1,339) (36,943) 5,274 145,510

TOTAL (1,338) (36,915) 5,275 145,537

The annexed notes form an integral part of and should be read in conjunction with the accompanying financial statements.

170

CASH FLOW STATEMENT FOR THE FINANCIAL YEAR ENDED MARCH 31, 2006

Note 2006 2006 2005 2005

$ Rs $ Rs

Cash flows from operating activities:

Net loss before taxation (6,613) (182,452) (13,429) (370,506)

Adjustment for:

Depreciation 3 - - 587 16,195

Net loss before working capital changes (6,613) (182,452) (12,842) (354,311)

Amount owing from a shareholder 16,052 442,875 - -

Prepayment 563 15,532 119 3,283

Other payables (36,585) (1,009,380) 33,557 925,838

Amount due to a director - - (12,400) (342,116)

Net (decrease)/increase in cash and cash equivalents (26,583) (733,425) 8,434 232,694

Cash and cash equivalents at beginning of financialYear 37,244 1,027,562 28,810 794,868

Cash and cash equivalents at end of financial year 10,661 294,137 37,244 1,027,562


PROFIT AND LOSS ACCOUNT FOR THE FINANCIAL YEAR ENDED MARCH 31, 2006


Note 2006 2006 2005 2005

$ Rs $ Rs

Revenue 70,405 1,942,474 68,009 1,876,368

Other income 196 5,407 - -

Depreciation of plant and equipment 3 - - (587) (16,195)

Operating expenses (77,214) (2,130,333) (80,851) (2,230,679)

Net loss before taxation 6 (6,613) (182,452) (13,429) (370,506)

Taxation 7 - - - -

Net loss after taxation (6,613) (182,452) (13,429) (370,506)

Accumulated losses brought forward (394,725) (10,890,463) (381,296) (10,519,957)

Accumulated losses carried forward (401,338) (11,072,915) (394,725) (10,890,463)

STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED MARCH 31, 2006

Share Share (Accumulated (Accumulated Total Total

Capital capital lossess) lossess)

$ Rs. $ Rs. $ Rs.

Balance at April 1, 2004 400,000 11,036,000 (381,296) (10,519,957) 18,704 516,043

Net loss for the financial year - - (13,429) (370,506) (13,429) (370,506)

Balance at March 31, 2005 400,000 11,036,000 (394,725) (10,890,463) 5,275 145,537

Net loss for the financial year - - (6,613) (182,452) (6,613) (182,452)

Balance at March 31, 2006 400,000 11,036,000 (401,338) (11,072,915) (1,338) (36,915)



171

TECH MAHINDRA (R & D Services) Pte. Ltd.

These notes form an integral part of and should be read in conjunction with the accompanying financial statements.

1. GENERAL

a) Country of incorporation and domicile

The company is incorporated and domiciled in the Republic of Singapore with its registered office at 460 Alexandra Road

#24-05 PSA Building Singapore 119963.

b) Principal activities

The principal activities of the company are those of developing software and multimedia and providing technical

assistance and maintenance services

There have been no significant changes in the nature of these activities during the financial year.

c) Number of employees

Other than the directors, the company has no employees as at 31 March 2006 and 31 March 2005.

D) Authorisation of financial statements

The financial statements were authorised for issue by the board of directors on 23 May 2006.

e) Change of company’s name

The name of the company had been changed from AXES TECHNOLOGIES (ASIA PACIFIC) PTE LTD TO TECH

MAHINDRA (R & D SERVICES) PTE. LIMITED with effect from 15 March 2006.

2. SIGNIFICANT ACCOUNTING POLICIES

a) Statement of compliance

The financial statements are prepared in accordance with Singapore Financial Reporting Standards (FRS) including related

Interpretations promulgated by the Council on Corporate Disclosure and Governance (CCDG).

b) Basis of accounting

The financial statements, expressed in Singapore dollars, are prepared in accordance with the historical cost convention.

c) Plant and equipment

Plant and equipment is stated at cost less accumulated depreciation. The cost of an asset comprises its purchase price and

any directly attributable costs of bringing the asset to working condition for its intended use. Expenditure for additions,

improvements and renewals are capitalised and expenditure for maintenance and repairs are charged to the profit and

loss account. When plant and equipment are sold or retired, their cost and accumulated depreciation are removed

from the financial statements and any gain or loss resulting from their disposal is included in the income statement.

d) Depreciation of plant and equipment

Depreciation is calculated to write off the cost of plant and equipment by the straight-line method over their estimated

useful lives. The annual rates used are as follows:

Office equipment 33%

Fully depreciated plant and equipment are retained in the financial statements until they are no longer in use.

e) Taxation

Income tax expense is calculated on the basis of tax effect accounting, using the liability method and is applied to all

significant temporary differences.

Deferred income tax is provided, using the liability method, on all temporary

differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for

financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences.

Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax

losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary

differences, carry-forward of unused tax assets and unused tax losses can be utilised. The carrying amount of deferred

tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED

MARCH 31, 2006

172

taxable profit will be available to allow all or part of the deferred tax asset to be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset

is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or subsequently enacted

at the balance sheet date.

f) Revenue recognition

Consultancy income is recognised upon performance of services.

g) Impairment

The carrying amounts of the company’s assets are reviewed at each balance sheet date. If any indication of impairment

exists, an impairment loss is recognised to the extent of the excess of the carrying amount over the estimated recoverable

amount.

h) Provisions

Provisions are recognised when the company has a present obligation (legal or constructive) as a result of a past event, it is

probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable

estimate can be made of the amount of the obligation.

i) Financial instruments

The main risks from the company’s financial instruments including liquidity risk, foreign currency risk, credit risk and interest

rate risk are described as follows:

(i) Liquidity risk

Liquidity risk arises when difficulty is encountered in raising funds to meet commitments associated with financial

instruments.

The company has no liquidity risk.

(ii) Foreign currency risk

Foreign currency risk arises from potential changes in foreign exchange rates that have an adverse effect on the company in

the current reporting year or in future years.Since the majority of the company’s activities are denominated in local currency,

therefore, no significant risk arises from changes in foreign exchange rates.

(iii) Credit risk

Credit risk arises when one party to a financial instrument fails to discharge an obligation and cause the other party to incur a

financial loss.

The carrying amounts of receivables represent the company’s maximum exposure to credit risk. The company has no

Significant concentrations of credit risk with any single customer.

(iv) Interest rate risk

Interest rate risk arises from potential changes in interest rates that may have adverse effect on the company in the current

reporting year or in future years. The company has no significant exposure to market risk for changes in interest rates as it

has no borrowings.

j) Foreign currency conversion

Foreign currency amounts are translated for convenience into Indian Rupees at the exchange rate of Rs 27.59 = SGD1 which

is the average of the telegraphic transfer buying and selling rates quoted by the Mumbai Branch of State Bank of India on 31

March 2006.

k) Employee benefits

(i) Defined contribution plan

As required by law, the company makes contributions to state pension scheme, the Central Provident Fund (CPF). CPF

contributions are recognized as compensation expense in the same year as the employment that gives rise to the

contribution.

(ii) Employee leave entitlement

Employee entitlements to annual leave are recognised when they accrue to employees. An accrual is made of the estimated \

Liability for leave as a result of services rendered by employees up to the balance sheet date.


MARCH 31, 2006 (contd.)


173

TECH MAHINDRA (R & D Services) Pte. Ltd.

3. PLANT AND EQUIPMENT

Office Office

equipment equipment Total Total

$ Rs $ Rs

Cost

At April 1, 2005 and March 31 2006 6,783 187,143 6,783 187,143

Accumulated depreciation

At 01/04/2005 6,782 187,115 6,782 187,115

Charge for 2006 - - - -

At March 31 2006 6,782 187,115 6,782 187,115

Charge for 2005 587 16,195 587 16,195

Net book value

At March 31 2006 1 28 1 28

At March 31 2005 1 28 1 28

4. AMOUNT OWING FROM A SHAREHOLDER

The amount owing from a shareholder was non-trade in nature, unsecured, interest-free and had no fixed terms of

repayment.

5. OTHER PAYABLES

2006 2006 2005 2005

$ Rs $ Rs

Other creditor 10,000 275,900 - -

Amount due to a shareholder - - 46,500 1,282,935

Accrued operating expenses 2,000 55,180 2,085 57,525

12,000 331,080 48,585 1,340,460

6. NET (LOSS)/PROFIT BEFORE TAXATION

2006 2006 2005 2005

$ Rs $ Rs

Net (loss)/profit before taxation is arrived

At after charging:

Auditors’ remuneration 3,295 90,909 1,365 37,660

7. TAXATION

As at 31 March 2006, the company has unabsorbed tax losses of approximately $383,000 (2005: $377,000) available to

offset against future taxable income subject to there being no substantial change in the shareholders of the company

and their shareholdings within the meaning of Section 37 of the Singapore Income Tax Act and agreement by the Inland

Revenue Authority of Singapore.

8. IMMEDIATE AND ULTIMATE HOLDING COMPANY

The immediate and ultimate holding company is Tech Mahindra (R & D Services) Ltd (Formerly known as Axes

Technologies (India) Private Limited), incorporated in India.

9. SIGNIFICANT RELATED PARTY TRANSACTIONS

During the financial year, the company had significant related party transactions on terms agreed between the parties

as follows:

2006 2006 2005 2005

$ Rs $ Rs

Consultancy income earned 70,405 1,942,474 68,009 1,876,368

Reimbursement of expenses 49,500 1,365,705 70,500 1,945,095

10. GOING CONCERN

The financial statements have been prepared on a going concern basis, notwithstanding the deficiency in shareholders’

funds, on the assumption that the directors/shareholders will continue to provide the necessary financial support to

enable the company to continue its operations.


MARCH 31, 2006

174


MARCH 31, 2006

Schedules of Staff Costs and Operating Expenses for the financial year ended March 31, 2006

Accounting fee 1,200 33,108 1,200 33,108

Auditors’ remuneration 3,295 90,909 1,365 37,660

Bad debt written off 16,052 442,875 - -

Bank charges 310 8,553 225 6,208

Courier services 497 13,712 387 10,677

Entertainment and refreshment 213 5,877 176 4,856

Miscellaneous 68 1,876 - -

Repairs and maintenance 10 276 307 8,470

Printing and stationery 809 22,320 715 19,727

Professional fees 1,813 50,020 2,524 69,637

Reimbursement of expenses 49,500 1,365,705 70,500 1,945,095

Telephone 2,807 77,445 2,973 82,025

Transport 231 6,373 165 4,553

Utilities 409 11,284 314 8,663

77,214 2,130,333 80,851 2,230,679TOTAL

2006$

2006Rs.

2005Rs.

2005$

Operating expenses

This schedule does not form part of the audited financial statements.

NOTES

Tech Mahindra (Americas), India SingaporeInc.Tech Mahindra Limited Tech Mahindra Software12600 Deerfield Parkway,Sharda Centre, Off Karve Road, Technologies Pte. Ltd.Ste 100, Alpharetta, GA 30004Erandwane, Pune 411 004. 152, Beach Road, #32-01/04,Tel: + 1 678 575-7618Tel: +91 20 6601 8100 Gateway Tower (East),Fax: + 1 678 296-0469Fax: +91 20 542 4466 Singapore 189721.

Tel: +65 6290 7110Tech Mahindra (Americas), Tech Mahindra Limited Fax: +65 6293 9500Inc.Wing 1, Oberoi Estate Gardens,2140 Lake Park Blvd.,Chandivali, Andheri (E), AustraliaRichardson, TX, 75080Mumbai 400 072. Tech Mahindra LimitedTel: +1 972 991-2900Tel: +91 22 6688 2000 Level 2, Suite 5

Fax: +91 22 2852 8959 64 Talavera RoadTech Mahindra (Americas), North Ryde 2113Inc.Tech Mahindra Limited Australia.1270, S. Winchester Blvd,46, Aradhana, Sector 13, Tel: +61-2-9888 4755Suite # 130,R. K. Puram, New Delhi 110 Fax: +61-2-9888 4766San Jose, California066.Tel: +1 408-960-5244Tel: +91 11 688 9471 Thailand

Fax: +91 11 410 2146 Tech Mahindra LimitedTech Mahindra (Americas), 23rd Flr, M. Thai Towers,Inc.Tech Mahindra Limited 87, Wireless Road15 Corporate Place South,rd th 3 & 4 floor, C Bldg, Bangkok, Thailand.Suite 130, Piscataway, NJ Bengal Intelligent Park Ltd., Tel: +66 2627 909808854Opp. Infinity Towers, Sector 5 Fax: +66 2627 9227Tel: +1 732 981 1060Salt Lake, Kolkata - 700 091

Fax: +1 732 981 1066Taiwan

Tech Mahindra LimitedTech Mahindra LimitedUKB-26 Sector - 57,No 2 (C), 14th Floor,Noida - 201301 Tech Mahindra Limited495, Guang Fu South Road,1st Floor,Taipei, Taiwan. ROC.Tech Mahindra (R&D Charles Schwab Building,Tel : +886 2 8780 8000Services) Ltd. 401, Grafton Gate (E),Fax : +886 2 8780 80009 / 7 Hosur Road, Milton Keynes MK9 1AQ.

Bangalore - 560029 Tel : +44 01908 553400Tel: +91 80 2 552 1056 Fax : +44 01908 553499Fax: +91 80 2 553 9231

GermanyTech Mahindra (R&D Tech Mahindra GmbHServices) Ltd D-40476, Düsseldorf, Germany.No. 58, Sterling Regency, Tel : + 49 (0) 211 60012-101Sterling Road, Fax : + 49 (0) 211 60012-111Nungambakkam,Chennai - 600034 UAETel: +91 44 2 825 3323 Tech Mahindra LimitedFax: +91 44 2 825 3352 PO Box 54275,

Dubai, United Arab Emirates.USA Tel: +971 4 2996365Tech Mahindra (Americas), Fax: +971 4 2996364Inc.384 Inverness Parkway, EgyptSuite 205, Englewood, Tech Mahindra LimitedCO 80112 Arkadia Building, Cornish El Nil,Tel: +1 720 200 8855 8th floor, P.O. Box 14,Fax: +1 303 694 0540 Sabtteyah 11624, Cairo, Egypt.

Tel : +002 02 5806608Fax : +002 02 5806601

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Documents

TML Annual Report 2005-2006